Commercial Law Review
Atty. Carlo Vincent G. Balicas
BANKING LAW (R.A. 8791)
General Banking Law:
Sec. 3 of the General Banking Law provides that: "Banks"
shall refer to entities engaged in the lending of funds obtained
in the form of deposits.”
Sec. 8 of the General Banking Law provides that: “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;
8.2 That its funds are obtained from the public, which shall
mean twenty (20) or more persons; and
8.3 That the minimum capital requirements prescribed by the
Monetary Board for each category of banks are satisfied.
No new commercial bank shall be established within three (3)
years from the effectivity of this Act. In the exercise of the
authority granted herein, the Monetary Board shall take into
consideration their capability in terms of their financial
resources and technical expertise and integrity. The bank
licensing process shall incorporate an assessment of the
bank’s ownership structure, directors and senior
management, its operating plan and internal controls as well
as its projected financial condition and capital base.”
*To be registered as bank, it must be a stock corporation.
*Banks must obtain funds from the public. Minimum number
of depositor is 20 persons.
Nature of Business:
Sec. 2 of the General Banking Law states that: “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.”
Consequences:
1. Sec. 9 of the General Banking Law provides that:
“The Monetary Board may prescribe rules and
regulations on the types of stock a bank may issue,
including the terms thereof and rights appurtenant
thereto to determine compliance with laws and
regulations governing capital and equity structure of
banks; Provided, That banks shall issue par value
stocks only.”
2. Bank must be an open corporation
Reason: Vital to industry
3. The word “bank” cannot be used if such person or
entity is not engaged in banking business.
4. It is subject to heavy and close supervision and/or
regulation by the Bangko Sentral ng Pilipinas.
5. Banks must observe highest degree of diligence.
6. Sec. 22 of the General Banking Law states that: “The
banking industry is hereby declared as indispensable
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Maria Zarah – Villanueva - Castro
to the national interest and, notwithstanding the
provisions of any law to the contrary, any strike or
lockout involving banks, if unsettled after seven (7)
calendar days shall be reported by the Bangko
Sentral to the Secretary of Labor who may assume
jurisdiction over the dispute or decide it or certify
the same to the National Labor Relations
Commission for compulsory arbitration. However,
the President of the Philippines may at any time
intervene and assume jurisdiction over such labor
dispute in order to settle or terminate the same.”
*In DBP v CA, the SC held that while an innocent
mortgagee is not expected to conduct an exhaustive
investigation on the history of the mortgagor’s title, in
case of a banking institution, it must exercise due
diligence before entering into said contract, and cannot
rely upon on what is or is not annotated on the title.
Cases: China Banking v Lagon; Citibank v Cabangongan
Authority to incorporate and operate:
Sec. 14 of the General Banking Law states that: “The
Securities and Exchange Commission shall not register the
articles of incorporation of any bank, or any amendment
thereto, unless accompanied by a certificate of authority
issued by the Monetary Board, under its seal. Such certificate
shall not be issued unless the Monetary Board is satisfied
from the evidence submitted to it:
14.1. That all requirements of existing laws and regulations to
engage in the business for which the applicant is proposed to
be incorporated have been complied with;
14.2. That the public interest and economic conditions, both
general and local, justify the authorization; and
14.3. That the amount of capital, the financing, organization,
direction and administration, as well as the integrity and
responsibility of the organizers and administrators reasonably
assure the safety of deposits and the public interest.
The Securities and Exchange Commission shall not register the
by-laws of any bank, or any amendment thereto, unless
accompanied by a certificate of authority from the Bangko
Sentral.”
*The articles of incorporation must be accompanied by the
favorable recommendation of the BSP.
Sec. 6 of the General Banking Law provides that: “No person
or entity shall engage in banking operations or quasi-banking
functions without authority from the Bangko Sentral:
Provided, however, That 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. To resolve such issue, the Monetary Board may;
through the appropriate supervising and examining
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department of the Bangko Sentral, examine, inspect or
investigate the books and records of such person or entity.
Upon issuance of this authority, such person or entity may
commence to engage in banking operations or quasi-banking
function and shall continue to do so unless such authority is
sooner surrendered, revoked, suspended or annulled by the
Bangko Sentral in accordance with this Act or other special
laws.
The department head and the examiners of the appropriate
supervising and examining department are hereby authorized
to administer oaths to any such person, employee, officer, or
director of any such entity and to compel the presentation or
production of such books, documents, papers or records that
are reasonably necessary to ascertain the facts relative to the
true functions and operations of such person or entity. Failure
or refusal to comply with the required presentation or
production of such books, documents, papers or records
within a reasonable time shall subject the persons responsible
therefore to the penal sanctions provided under the New
Central Bank Act.
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.”
Classification of banks:
Sec. 3.2 of the General Banking Law provides that: “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.”
Distinctions between different kinds of banks:
a. As to Capitalization: They have different minimum
capitalization requirements.
b. As to Purpose: Some of the banks have specific
purposes and social functions.
c. 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
Commercial Law Review
Atty. Carlo Vincent G. Balicas
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powers only upon prior approval of the Monetary
Board.
*Universal banks can engage into non-allied
enterprises. It can also act as an investment house,
thus, it can enter into underwriting commitments
and do underwriting securities.
d. As to who can be directors: Public officers can be
directors of Rural Banks while such officers are
prohibited from being directors or officers of other
types of banks.
e. As to Incorporators: General Rule: Incorporators
must be natural persons. Exception: In rural banks, it
can be organized or established by cooperatives and
corporations primarily organized to hold equities in
rural banks.
f. As to Foreign Equity: A rural bank must be wholly
owned by Filipinos while other banks require only
40% Filipino ownership of their voting stocks.
*In RA 6938, majority of the shares must be owned
by cooperatives.
g. 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.
Functions of the bank:
1. Deposit Functions
2. Loan Functions
Deposit Function:
*The relationship created is one of creditor-debtor relation.
*There is passing of ownership to the bank.
*The bank can appropriate the deposits without the consent
of the depositor.
*Legal compensation can take place because they are
mutually creditor-debtor of each other.
*Prior to incorporation, the deposits can be named to
corporate treasurer. He will held it in trust for the corporation.
Depositors:
1. Minors:
- They can open bank accounts in their own right
provided that they are at least 7 years of age; they
are able to read and write and have sufficient
discretion; they are not otherwise disqualified by any
other incapacity; and it should only be savings or
time deposits.
* They cannot open checking account nor demand
deposits.
2. Married Women:
- They are allowed to open bank accounts without
the assistance of their husbands.
Reason: equality in capacity
*Bank account may be opened by one individual or two or
more persons. Whenever two or more persons open an
account, the same may be an “and/or account” or an “and
account”.
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General Rule: Fictitious accounts or anonymous accounts are
prohibited.
Exception: Foreign currency deposits which may be a
numbered account.
*The law requires that necessary measures are undertaken by
the bank to record and establish the true identity of the
depositor.
*Joint accounts may be the subject of survivorship agreement
whereby the co-depositors agree to permit either of them to
withdraw the whole deposit during their lifetime and
transferring the balance to the survivor upon the death of one
of them.
Basis: Trust and Confidence
*What is prohibited under the Family Code is donation inter
vivos and not donation mortis causa.
Secrecy of Bank Deposits:
Peso deposits:
General Rule: Sec. 2 of Republic Act No. 1405 provides that:
“All deposits of whatever nature with banks or banking
institutions in the Philippines including investments in bonds
issued by the Government of the Philippines, its political
subdivisions and its instrumentalities, are hereby considered
as of an absolutely confidential nature and may not be
examined, inquired or looked into by any person,
governmental official, bureau or office.”
Exceptions:
1. When there is written permission of the depositor or
investor;
2. Impeachment cases;
3. Upon the order of a competent court in cases of
bribery or dereliction of duty of public officials;
4. Upon the order of a competent court in cases where
the money deposited or invested is the subject of
litigation;
5. Upon order of the competent court or tribunal in
cases involving unexplained wealth under Sec. 8 of
the Anti-Graft and Corrupt Practices Act (R.A. 3019);
6. Upon inquiry by the Commissioner of Internal
Revenue for the purpose of determining the net
estate of a deceased depositor;
*In case the taxpayer compromised his tax liability by
reason of financial incapacity.
7. General Rule: Upon the order of a competent court
or in proper cases by the Anti-Money Laundering
Council where there is probable cause of money
laundering.
Exception: In some instances even without court
order.
8. Disclosure of the Treasurer of the Philippines for
dormant deposits for at least 10 years under the
Unclaimed Balances Act (R.A. 3936)
*Escheat proceedings
Foreign Currency deposits:
*Subsequent to secrecy law.
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
Under the Foreign Currency Deposit Act, there is only one
exception and that is: When there is a written consent of
depositor.
Secrecy of Deposits under the Anti-Money Laundering Law :
General Rule: The Anti-Money Laundering Council may
inquire into deposits upon order of the court when there is
probable cause that the deposits are related to the crime of
unlawful activities defined in Sec. 3(1) and Sec. 4 of R.A. 9160
as amended by R.A. 9194.
Exception: A court order is not even necessary when the
offense or unlawful activity involved is any of the following: 1.
Kidnapping for ransom under Article 267 of the Revised Penal
Code; 2. Sections 4, 5, 7, 8, 9, 10, 12, 13, 14, 15, and 16 of the
Comprehensive Dangerous Drugs Act of 2002; and Hi-jacking
and other violations under R.A. 6235; destructive arson and
murder, as defined under the Revised Penal Code, as
amended, including those perpetrated by terrorists against
non-combatant persons and similar targets.
Garnishment:
General Rule: Bank accounts may be garnished by the
creditors of the depositor.
Reason: Not deposits for investment, thus, law on secrecy is
not applicable.
Exceptions:
1. Foreign Currency Deposits
*In Salvacion v Central Bank of the Philippines, the
SC held that foreign currency deposits of an
American tourist who was found guilty of repeatedly
raping a twelve years old child is subject to
garnishment.
2. Those exempt under the Rules of Civil Procedure like
provision for the family for four months
Deposit Insurance:
*All deposits of any bank are insured with the PDIC.
*Obligation to pay the premium lies on the bank.
Risk insured against: closure of banks due to liquidity
problems.
*Insured deposit under the law means the net amount due to
any depositor for deposits in an insured bank but should not
exceed P250,000. If the depositor has two or more accounts
with the same bank, the maximum coverage of P250,000
pertains to the sum of all such accounts maintained in the
same right and capacity.
*A joint account shall be insured separately from any
individual-owned account.
*A joint account held by a juridical person or entity jointly
with natural person/s shall be presumed to belong to the
juridical person.
*The aggregate share in all joint accounts is subject to
P250,000 threshold.
Loan Function of the Banks:
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*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 financed.
Single Borrower’s Limit:
Sec. 35.1 of the General Banking Law provides that: “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. The basis for determining
compliance with single borrower limit is the total credit
commitment of the bank to the borrower.
Sec. 35.2 of the General Banking Law states that: “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.”
DOSRI ACCOUNTS:
Sec. 36 of the General Banking Law states that: “No director
or officer of any bank shall, directly or indirectly, for
himself or as the representative or agent of others, borrow
from such bank nor shall he become a guarantor, endorser or
surety for loans from such bank to others, or in any manner
be an obligor or incur any contractual liability to the bank
except with the written approval of the majority of all the
directors of the bank, excluding the director concerned:
Provided, That such written approval shall not be required for
loans, other credit accommodations and advances granted
to officers under a fringe benefit plan approved by the
Bangko Sentral. The required approval shall be entered upon
the records of the bank and a copy of such entry shall be
transmitted forthwith to the appropriate supervising and
examining department of the Bangko Sentral.
Dealings of a bank with any of its directors, officers or
stockholders and their related interests shall be upon terms
not less favorable to the bank than those offered to others.
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.
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. However, the outstanding loans, credit
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
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: Provided,
however, That loans, credit accommodations and
guarantees secured by assets considered as non-risk by
the Monetary Board shall be excluded from such limit:
Provided, further, That loans, credit accommodations and
advances to officers in the form of fringe benefits granted
in accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual limit.
The Monetary Board shall define the term “related interests.”
The limit on loans, credit accommodations and guarantees
prescribed herein shall not apply to loans, credit
accommodations and guarantees extended by a
cooperative bank to its cooperative shareholders.”
Purpose: To protect the general public from the abuse of the
directors, officers, stockholders and related interests of the
bank.
Requisites:
1. The borrower is a director, officer or any stockholder
of a bank;
2. He contract a loan or any form of financial
accommodation;
3. The loan or financial accommodation is from: a. his
bank, or b. a bank that is a subsidiary of a bank
holding company of which both his bank and lending
bank are subsidiaries, c. 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 interest, 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.
Examples:
1. If there is interlocking directors – subject to DOSRI
restrictions
2. General partner is either a director, officer,
stockholder or related interest of a lending bank –
subject to DOSRI restrictions
3. Stranger applied for a loan and a property was
collateral: a. if the property is owned by stranger
alone – not subject to DOSRI restrictions; b. if the
property is co-owned by a director, officer,
stockholder or related interest of the bank – subject
to DOSRI restrictions
4. A director, officer, stockholder, or related interests
owned more than 20% share in a corporation
(borrower) – subject to DOSRI restriction.
Restrictions:
1. Procedural requirement: The account should be
upon written approval of all the director 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.
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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.
Foreclosure of Mortgage
Sec. 47 of the General Banking Law provides that: “In the
event of foreclosure, whether judicially or extra-judicially, of
any mortgage on real estate which is security for any loan
or other credit accommodation granted, the mortgagor or
debtor whose real property
has been sold for the full or partial payment of his
obligation shall have the right within one year after the
sale of the real estate, to redeem the property by paying
the amount due under the mortgage deed, with interest
thereon at rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institution from the
sale and custody of said property less the income derived
there from. However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial foreclosure
shall have the right to enter upon and take possession of
such property immediately after the date of the
confirmation of the auction sale and administer the same
in accordance with law. Any petition in court to enjoin or
restrain the conduct of foreclosure proceedings instituted
pursuant to this provision shall be given due course only
upon the filing by the petitioner of a bond in an amount
fixed by the court conditioned that he will pay all the
damages which the bank may suffer by the enjoining or
the restraint of the foreclosure proceeding.
Notwithstanding Act 3135,juridical persons whose property
is being sold pursuant to an extra judicial foreclosure,
shall have the right to redeem the property in accordance
with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three (3) months
after foreclosure, whichever is earlier. Owners of property
that has been sold in a foreclosure sale prior to the effectivity
of this Act shall retain their redemption rights until their
expiration.”
Prohibited acts of Borrowers:
Sec. 55.2 of the General Banking Law states that: “No
borrower of a bank shall -
(a) Fraudulently overvalue property offered as security for a
loan or other credit accommodation from the bank;
(b) 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;
(c) Attempt to defraud the said bank in the event of a court
action to recover a loan or other credit accommodation; or
(d) 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.”
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
Ownership of Banks:
Sec. 11 of the General Banking Law provides that: “Foreign
individuals and non-bank corporations may own or control up
to forty percent (40%) of the voting stock of a domestic bank.
This rule shall apply to Filipinos and domestic non-bank
corporations.
The percentage of foreign-owned voting stocks in a bank shall
be determined by the citizenship of the individual
stockholders in that bank. The citizenship of the corporation
which is a stockholder in a bank shall follow the citizenship of
the controlling stockholders of the corporation, irrespective of
the place of incorporation.”
General Rule: Banks are partly nationalized
*The 60% minimum threshold must be satisfied by the bank.
*Filipino ownership – voting stocks owned by Filipinos
Examples:
X bank has 1M voting stocks: 600,000 owned by Filipinos and
400,000 owned by foreigners. The bank complied with the
60% requirement.
X bank has 1M voting shares: 400,000 owned by Filipinos;
400,000 owned by foreigners and 200,000 owned by Y
Corporation.
Q: Does the 60% requirement satisfied?
A: IT DEPENDS. Depending on the citizenship of Y
Corporation. If the majority controlling stockholders are
Filipino thus Y Corporation is a Filipino citizen hence the 60%
is complied with. If Y corporation is controlled by a foreigners
there is non-compliance of the 60% requirement.
*The 40% requirement is applicable not only to foreigners but
also to individual Filipino shareholders and domestic non-
bank corporation.
*If the corporation acquiring is a bank the 40% threshold is
not applicable.
Examples:
600,000 owned by Filipinos; 400,000 owned by foreigners
A – owned 500,000 shares
*A single Filipino stockholders can only own upto 40% of the
voting stock of the bank.
A Corporation which is not a banking institution – 500,000
shares
*A domestic non-bank corporation can only own upto 40% of
the voting stock of the bank.
800,000 owned by Filipinos; 200,000 owned by foreigners
In the 800,000 owned by Filipinos; 400,000 of which is owned
by A and the 200,000 is owned by A Corporation
In A Corporation, A is a stockholder owning 50% of the
controlling stock of A Corporation.
Q: Is this allowed?
A: NO. 50% of 200,000 is indirectly owned by a Filipino
individual, the 40% threshold is violated.
*The 40% threshold includes both direct and indirect
ownership of shares of the bank.
Act Liberalizing Entry of Foreign Banks:
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Sec. 2 of Republic Act No. 7721 provides that: “The Monetary
Board may authorize foreign banks to operate in the
Philippine banking system through any of the following modes
of entry: (i) by acquiring, purchasing or owning up to sixty
percent (60%) of the voting stock of an existing bank; (ii) by
investing in up to sixty percent (60%) of the voting stock of a
new banking subsidiary incorporated under the laws of the
Philippines; or (iii) by establishing branches with full banking
authority: Provided, That a foreign bank may avail itself of
only one (1) mode of entry: Provided, further, That a foreign
bank or a Philippine corporation may own up to a sixty
percent (60%) of the voting stock of only one (1) domestic
bank or new banking subsidiary.”
Sec. 3 of Republic Act No. 7721 states that: “In approving
entry applications of foreign banks, the Monetary Board shall:
(i) ensure geographic representation and complementation;
(ii) consider strategic trade and investment relationships
between the Philippines and the country of incorporation of
the foreign bank; (iii) study the demonstrated capacity, global
reputation for financial innovations and stability in a
competitive environment of the applicant; (iv) see to it that
reciprocity rights are enjoyed by Philippine banks in the
applicant's country; and (v) consider willingness to fully share
their technology.
Only those among the top one hundred fifty (150) foreign
banks in the world or the top five (5) banks in their country of
origin as of the date of application shall be allowed entry in
accordance with Section 2 (ii) and (iii) hereof.
In the exercise of this authority, the Monetary Board shall
adopt such measures as may be necessary to: (i) ensure that
at all times the control of seventy percent (70%) of the
resources or assets of the entire banking system is held by
domestic banks which are at least majority-owned by
Filipinos; (ii) prevent a dominant market position by one bank
or the concentration of economic power in one or more
financial institutions, or in corporations, participations,
partnerships, groups or individuals with related interests; and
(iii) secure the listing in the Philippine Stock Exchange of the
shares of stocks of banking corporations established under
Section 2(i) and (ii) of this Act: Provided, That said banking
corporations shall establish stock option plans for their
officers and employees as the resources or assets of these
corporations may allow in the best business judgment of their
respective boards of directors, pursuant to the Corporation
Code of the Philippines.
To qualify to establish a branch or a subsidiary, the foreign
bank applicant must be widely-owned and publicly-listed in its
country of origin, unless the foreign bank applicant is owned
by the government of its country of origin.”
General Rule: Foreigners must own only upto 40% of the
voting shares of a bank.
Exception: Foreign bank can own upto 60% of the voting
shares of a bank.
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
Directors and Officers:
Composition:
Sec. 15 of the General Banking Law states that: “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.
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.
The meetings of the board of directors may be conducted
through modern technologies such as, but not limited to,
teleconferencing and video-conferencing.”
Sec. 19 of the General Banking Law states that: “Except as
otherwise provided in the Rural Banks Act, no appointive
or elective public official whether full-time or part-time shall
at the same time serve as officer of any private bank, save
in cases where such service is incident to financial
assistance provided by the government or a government
owned or controlled corporation to the bank or unless
otherwise provided under existing laws.”
General Rule: The Board of Directors is composed of 5 to 15
members only.
Exception: In case of merger
Sec. 16 of the General Banking Law provides that: “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.”
Justification: Police power
Reason: Banking institution is imbued with public interest.
Regulations to maintain liquidity and security:
1. Sec. 34 of the General Banking Law provides that:
“The Monetary Board shall prescribe the minimum
ratio which the net worth of a bank must bear to its
total risk assets which may include contingent
accounts.
For purposes of this Section, the Monetary Board
may require such ratio be determined on the basis of
the net worth and risk assets of a bank and its
subsidiaries, financial or otherwise, as well as
prescribe the composition and the manner of
determining the net worth and total risk assets of
banks and their subsidiaries: Provided, That in the
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exercise of this authority, the Monetary Board shall,
to the extent feasible conform to internationally
accepted standards, including those of the Bank
for International Settlements (BIS), relating to risk-
based capital requirements: Provided further, That
it may alter or suspend compliance with such ratio
whenever necessary for a maximum period of one
(1) year: Provided, finally, That such ratio shall be
applied uniformly to banks of the same category. In
case a bank does not comply with the prescribed
minimum ratio, the Monetary Board may limit or
prohibit the distribution of net profits by such bank
and 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 The
Monetary Board may, furthermore, restrict or
prohibit the acquisition of major assets and the
making of new investments by the bank, with
the exception of purchases of readily marketable
evidences of indebtedness of the Republic of the
Philippines and of the Bangko Sentral and any other
evidences of indebtedness or obligations the
servicing and repayment of which are fully
guaranteed by the Republic of the Philippines,
until the minimum required capital ratio has
been restored. In case of a bank merger or
consolidation, or when a bank is under rehabilitation
under a program approved by the Bangko Sentral,
Monetary Board may temporarily relieve the
surviving bank, consolidated bank, or constituent
bank or corporations under rehabilitation from full
compliance with the required capital ratio under
such conditions as it may prescribe. Before the
effectivity of rules which the Monetary Board is
authorized to prescribe under this provision,
Section 22 of the General Banking Act, as amended,
Section 9 of the Thrift Banks Act, and all pertinent
rules issued pursuant thereto, shall continue to be in
force.”
2. The law imposes limits on loans, credit
accommodations and guarantees that may be
extended by banks.
3. Sec. 36 of the General Banking Law states that: “No
director or officer of any bank shall, directly or
indirectly, for himself or as the representative or
agent of others, borrow from such bank nor shall he
become a guarantor, endorser or surety for loans
from such bank to others, or in any manner be an
obligor or incur any contractual liability to the bank
except with the written approval of the majority of
all the directors of the bank, excluding the
director concerned: Provided, That such written
approval shall not be required for loans, other credit
accommodations and advances granted to officers
under a fringe benefit plan approved by the Bangko
Sentral. The required approval shall be entered
upon the records of the bank and a copy of
such entry shall be transmitted forthwith to the
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
appropriate supervising and examining department
of the Bangko Sentral.
Dealings of a bank with any of its directors,
officers or stockholders and their related interests
shall be upon terms not less favorable to the bank
than those offered to others.
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.
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.
However, 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:
Provided, however, That loans, credit
accommodations and guarantees secured by
assets considered as non-risk by the Monetary
Board shall be excluded from such limit: Provided,
further, That loans, credit accommodations and
advances to officers in the form of fringe benefits
granted in accordance with rules as may be
prescribed by the Monetary Board shall not be
subject to the individual limit.
The Monetary Board shall define the term “related
interests.”
The limit on loans, credit accommodations and
guarantees prescribed herein shall not apply to
loans, credit accommodations and guarantees
extended by a cooperative bank to its
cooperative shareholders.”
4. The law imposes restrictions on the value of
collaterals on loans.
5. Sec. 41 of the General Banking Law provides that:
“The Monetary Board is hereby authorized to issue
such regulations as it may deem necessary with
respect to unsecured loans or other credit
accommodations that may be granted by banks.”
6. Sec. 43 of the General Banking Law provides that:
“The Monetary Board, may, similarly in accordance
with the authority granted to it in Section 106 of the
New Central Bank Act, and taking into account
the requirements of the economy for the effective
utilization of long-term funds, prescribe the
maturities, as well as related terms and
conditions for various types of bank loans and
other credit accommodations. Any change by the
Board in the maximum maturities, as well as
7

related terms and conditions for various types of
bank loans and other credit accommodations.
Any change by the Board in the maximum
maturities shall apply only to loans and other credit
accommodations made after the date of such action.
The Monetary Board shall regulate the interest
imposed on micro finance borrowers by lending
investors and similar lenders such as, but not
limited to, the unconscionable rates of interest
collected on salary loans and similar credit
accommodations.”
7. Sec. 57 of the General Banking Law states that: “No
bank or quasi-bank shall declare dividends, if at the
time of declaration:
57.1 Its clearing account with the Bangko Sentral is
overdrawn; or
57.2 It is deficient in the required liquidity floor
for government deposits for five (5) or more
consecutive days, or
57.3 It does not comply with the liquidity
standards/ratios prescribed by the Bangko Sentral for
purposes of determining funds available for dividend
declaration; or
57.4 It has committed a major violation as may be
determined by the Bangko Sentral.”
Other functions of the Bangko Sentral:
A. Emergency Loan
Sec. 84 of the New Central Bank Act states that:
“In periods of national and/or local emergency
or of imminent financial panic which directly
threaten monetary and banking stability, the
Monetary Board may, by a vote of at least five
(5) of its members, authorize the Bangko Sentral
to grant extraordinary loans or advances to
banking institutions secured by assets as defined
hereunder: Provided, That while such loans or
advances are outstanding, the debtor institution
shall not, except upon prior authorization by the
Monetary Board, expand the total volume of its
loans or investments.
The Monetary Board may, at its discretion,
likewise authorize the Bangko Sentral to grant
emergency loans or advances to banking
institutions, even during normal periods, for the
purpose of assisting a bank in a precarious
financial condition or under serious financial
pressures brought by unforeseen events, or
events which, though foreseeable, could not be
prevented by the bank concerned: Provided,
however, That the Monetary Board has
ascertained that the bank is not insolvent and
has the assets defined hereunder to secure the
advances: Provided, further, That a concurrent
vote of at least five (5) members of the
Monetary Board is obtained.
The amount of any emergency loan or advance
shall not exceed the sum of fifty percent (50%)
Commercial Law Review
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of total deposits and deposit substitutes of the
banking institution and shall be disbursed in two
(2) or more tranches. The amount of the first
tranche shall be limited to twenty-five percent
(25%) of the total deposit and deposit
substitutes of the institution and shall be
secured by government securities to the extent
of their applicable loan values and other
unencumbered first class collaterals which the
Monetary Board may approve: Provided, That if
as determined by the Monetary Board, the
circumstances surrounding the emergency
warrant a loan or advance greater than the
amount provided hereinabove, the amount of
the first tranche may exceed twenty-five percent
(25%) of the bank's total deposit and deposit
substitutes if the same is adequately secured by
applicable loan values of government securities
and unencumbered first class collaterals
approved by the Monetary Board, and the
principal stockholders of the institution furnish
an acceptable undertaking to indemnify and
hold harmless from suit a conservator whose
appointment the Monetary Board may find
necessary at any time.
Prior to the release of the first tranche, the
banking institution shall submit to the Bangko
Sentral a resolution of its board of directors
authorizing the Bangko Sentral to evaluate other
assets of the banking institution certified by its
external auditor to be good and available for
collateral purposes should the release of the
subsequent tranche be thereafter applied for.
The Monetary Board may, by a vote of at least
five (5) of its members, authorize the release of
a subsequent tranche on condition that the
principal stockholders of the institution:
(a) furnish an acceptable undertaking to
indemnify and hold harmless from suit a
conservator whose appointment the Monetary
Board may find necessary at any time; and
(b) provide acceptable security which, in the
judgment of the Monetary Board, would be
adequate to supplement, where necessary, the
assets tendered by the banking institution to
collateralize the subsequent tranche.
In connection with the exercise of these powers,
the prohibitions in Section 128 of this Act shall
not apply insofar as it refers to acceptance as
collateral of shares and their acquisition as a
result of foreclosure proceedings, including the
exercise of voting rights pertaining to said
shares: Provided, however, That should the
Bangko Sentral acquire any of the shares it has
accepted as collateral as a result of foreclosure
proceedings, the Bangko Sentral shall dispose of
said shares by public bidding within one (1) year
from the date of consolidation of title by the
Bangko Sentral.
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Whenever a financial institution incurs an
overdraft in its account with the Bangko Sentral,
the same shall be eliminated within the period
prescribed in Section 102 of this Act.”
B. Appointment of Conservator
Sec. 29 of the New Central Bank Act states that:
“Whenever, on the basis of a report submitted
by the appropriate supervising or examining
department, the Monetary Board finds that a
bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition
of liquidity deemed adequate to protect the
interest of depositors and creditors, the
Monetary Board may appoint a conservator with
such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities,
and the management thereof, reorganize the
management, collect all monies and debts due
said institution, and exercise all powers
necessary to restore its viability. The conservator
shall report and be responsible to the Monetary
Board and shall have the power to overrule or
revoke the actions of the previous management
and board of directors of the bank or quasi-
bank.
The conservator should be competent and
knowledgeable in bank operations and
management. The conservatorship shall not
exceed one (1) year.
The conservator shall receive remuneration to
be fixed by the Monetary Board in an amount
not to exceed two-thirds (2/3) of the salary of
the president of the institution in one (1) year,
payable in twelve (12) equal monthly payments:
Provided, That, if at any time within one-year
period, the conservatorship is terminated on the
ground that the institution can operate on its
own, the conservator shall receive the balance
of the remuneration which he would have
received up to the end of the year; but if the
conservatorship is terminated on other grounds,
the conservator shall not be entitled to such
remaining balance. The Monetary Board may
appoint a conservator connected with the
Bangko Sentral, in which case he shall not be
entitled to receive any remuneration or
emolument from the Bangko Sentral during the
conservatorship. The expenses attendant to the
conservatorship shall be borne by the bank or
quasi-bank concerned.
The Monetary Board shall terminate the
conservatorship when it is satisfied that the
institution can continue to operate on its own
and the conservatorship is no longer necessary.
The conservatorship shall likewise be terminated
should the Monetary Board, on the basis of the
report of the conservator or of its own findings,
determine that the continuance in business of
the institution would involve probable loss to its
Commercial Law Review
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depositors or creditors, in which case the
provisions of Section 30 shall apply.”
*Experiencing liquidity problems only.
Powers of Conservator:
1. To take charge of the assets, liabilities, and
the management thereof;
2. To reorganize the management of the
subject bank;
3. To collect all monies and debts due said
institutions; and
4. To exercise all powers necessary to restore
its viability
Except: Those already perfected
C. Appointment of Receiver
Sec. 30 of the New Central Bank Act provides
that: “Whenever, upon report of the head of the
supervising or examining department, the
Monetary Board finds that a bank or quasi-bank:
(a) is unable to pay its liabilities as they become
due in the ordinary course of business: Provided,
That this shall not include inability to pay caused
by extraordinary demands induced by financial
panic in the banking community;
(b) has insufficient realizable assets, as
determined by the Bangko Sentral, to meet its
liabilities; or
(c) cannot continue in business without
involving probable losses to its depositors or
creditors; or
(d) has willfully violated a cease and desist order
under Section 37 that has become final,
involving acts or transactions which amount to
fraud or a dissipation of the assets of the
institution; in which cases, the Monetary Board
may summarily and without need for prior
hearing forbid the institution from doing
business in the Philippines and designate the
Philippine Deposit Insurance Corporation as
receiver of the banking institution.
For a quasi-bank, any person of recognized
competence in banking or finance may be
designed as receiver.
The receiver shall immediately gather and take
charge of all the assets and liabilities of the
institution, administer the same for the benefit
of its creditors, and exercise the general powers
of a receiver under the Revised Rules of Court
but shall not, with the exception of
administrative expenditures, pay or commit any
act that will involve the transfer or disposition of
any asset of the institution: Provided, That the
receiver may deposit or place the funds of the
institution in non-speculative investments. The
receiver shall determine as soon as possible, but
not later than ninety (90) days from takeover,
whether the institution may be rehabilitated or
otherwise placed in such a condition so that it
may be permitted to resume business with
safety to its depositors and creditors and the
9

general public: Provided, That any determination
for the resumption of business of the institution
shall be subject to prior approval of the
Monetary Board.
If the receiver determines that the institution
cannot be rehabilitated or permitted to resume
business in accordance with the next preceding
paragraph, the Monetary Board shall notify in
writing the board of directors of its findings and
direct the receiver to proceed with the
liquidation of the institution. The receiver shall:
(1) file ex parte with the proper regional trial
court, and without requirement of prior notice
or any other action, a petition for assistance in
the liquidation of the institution pursuant to a
liquidation plan adopted by the Philippine
Deposit Insurance Corporation for general
application to all closed banks. In case of quasi-
banks, the liquidation plan shall be adopted by
the Monetary Board. Upon acquiring
jurisdiction, the court shall, upon motion by the
receiver after due notice, adjudicate disputed
claims against the institution, assist the
enforcement of individual liabilities of the
stockholders, directors and officers, and decide
on other issues as may be material to implement
the liquidation plan adopted. The receiver shall
pay the cost of the proceedings from the assets
of the institution.
(2) convert the assets of the institutions to
money, dispose of the same to 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 of the Philippines and he
may, in the name of the institution, and with the
assistance of counsel as he may retain, institute
such actions as may be necessary to collect and
recover accounts and assets of, or defend any
action against, the institution. The assets of an
institution under receivership or liquidation shall
be deemed in custodia legis in the hands of the
receiver and shall, from the moment the
institution was placed under such receivership or
liquidation, be exempt from any order of
garnishment, levy, attachment, or execution.
The actions of the Monetary Board taken under
this section or under Section 29 of this Act shall
be final and executory, and may not be
restrained or set aside by the court except on
petition for certiorari on the ground that the
action taken was in excess of jurisdiction or with
such grave abuse of discretion as to amount to
lack or excess of jurisdiction. The petition for
certiorari may only be filed by the stockholders
of record representing the majority of the capital
stock within ten (10) days from receipt by the
board of directors of the institution of the order
directing receivership, liquidation or
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conservatorship. The designation of a
conservator under Section 29 of this Act or the
appointment of a receiver under this section
shall be vested exclusively with the Monetary
Board. Furthermore, the designation of a
conservator is not a precondition to the
designation of a receiver.”
*There is a bank closure.
“Close Now, Hear Later” Scheme:
Sec. 29 of the New Central Bank Act states that: “Whenever,
on the basis of a report submitted by the appropriate
supervising or examining department, the Monetary Board
finds that a bank or a quasi-bank is in a state of continuing
inability or unwillingness to maintain a condition of liquidity
deemed adequate to protect the interest of depositors and
creditors, the Monetary Board may appoint a conservator
with such powers as the Monetary Board shall deem
necessary to take charge of the assets, liabilities, and the
management thereof, reorganize the management, collect all
monies and debts due said institution, and exercise all powers
necessary to restore its viability. The conservator shall report
and be responsible to the Monetary Board and shall have the
power to overrule or revoke the actions of the previous
management and board of directors of the bank or quasi-
bank.
The conservator should be competent and knowledgeable in
bank operations and management. The conservatorship shall
not exceed one (1) year.
The conservator shall receive remuneration to be fixed by the
Monetary Board in an amount not to exceed two-thirds (2/3)
of the salary of the president of the institution in one (1) year,
payable in twelve (12) equal monthly payments: Provided,
That, if at any time within one-year period, the
conservatorship is terminated on the ground that the
institution can operate on its own, the conservator shall
receive the balance of the remuneration which he would have
received up to the end of the year; but if the conservatorship
is terminated on other grounds, the conservator shall not be
entitled to such remaining balance. The Monetary Board may
appoint a conservator connected with the Bangko Sentral, in
which case he shall not be entitled to receive any
remuneration or emolument from the Bangko Sentral during
the conservatorship. The expenses attendant to the
conservatorship shall be borne by the bank or quasi-bank
concerned.
The Monetary Board shall terminate the conservatorship
when it is satisfied that the institution can continue to operate
on its own and the conservatorship is no longer necessary.
The conservatorship shall likewise be terminated should the
Monetary Board, on the basis of the report of the conservator
or of its own findings, determine that the continuance in
business of the institution would involve probable loss to its
depositors or creditors, in which case the provisions of Section
30 shall apply.”
*No prior hearing is necessary in appointing a receiver and in
closing the bank. It is enough that subsequent judicial review
is provided for. Indeed, to require such previous hearing
would not only be impractical but would tend to defeat the
10

very purpose of the law when it invested the Monetary Board
with such authority.
Purpose: To avoid creation of panic from the depositors or
public.
Reason: The government has responsibility to see to it that
the person dealing with the bank is protected.
Effects of receivership and liquidation:
1. Suspension of operation
2. The assets under receivership or liquidation shall be
deemed in custodia legis in the hands of the receiver
and shall be exempt from garnishment, levy,
attachment or execution
3. Bank is not liable to pay interest on deposits during
the period of suspension of operation
Reason: There is no source of income
4. Banks under liquidation retain their legal personality
*The bank can sue and be sued but any case should
be initiated and prosecuted through the liquidator.
5. There will be no preference even if the claimant-
depositor obtained a writ of preliminary attachment.
Supervision of Banks:
Sec. 4 of the General Banking Law states that: “The
operations and activities of banks shall be subject to
supervision of the Bangko Sentral. “ Supervision” shall
include the following:
4.1. The issuance of rules of, conduct or the establishment
standards of operation for uniform application to all
institutions or functions covered, taking into consideration the
distinctive character of the operations of institutions and
the substantive similarities of specific functions to which
such rules, modes or standards are to be applied;
4.2 The conduct of examination to determine compliance
with laws and regulations if the circumstances so warrant as
determined by the
Monetary Board;
4.3 Overseeing to ascertain that laws and regulations are
complied with;
4.4 Regular investigation which shall not be oftener than
once a year from the last date of examination to
determine whether an institution is conducting its
business on a safe or sound basis: Provided, That the
deficiencies/irregularities found by or discovered by an
audit shall be immediately addressed;
4.5 Inquiring into the solvency and liquidity of the
institution; or
4.6 Enforcing prompt corrective action.
The Bangko Sentral shall also have supervision over the
operations of and exercise regulatory powers over quasi-
banks, trust entities and other financial institutions which
under special laws are subject to Bangko Sentral
supervision.
For the purposes of this Act, “ quasi-banks” shall refer to
entities engaged in the borrowing of funds through the
issuance, endorsement or assignment with recourse or
acceptance of deposit substitutes as defined in Section 95
of Republic Act No. 7653 (hereafter the “New Central Bank
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Act”) for purposes of re-lending or purchasing of receivables
and other obligations.”
Money Function:
Sec. 50 of the New Central Bank Act states that: “The Bangko
Sentral shall have the sole power and authority to issue
currency, within the territory of the Philippines. No other
person or entity, public or private, may put into circulation
notes, coins or any other object or document which, in the
opinion of the Monetary Board, might circulate as currency,
nor reproduce or imitate the facsimiles of Bangko Sentral
notes without prior authority from the Bangko Sentral.
The Monetary Board may issue such regulations as it may
deem advisable in order to prevent the circulation of foreign
currency or of currency substitutes as well as to prevent the
reproduction of facsimiles of Bangko Sentral notes.
The Bangko Sentral shall have the authority to investigate,
make arrests, conduct searches and seizures in accordance
with law, for the purpose of maintaining the integrity of the
currency.
Violation of this provision or any regulation issued by the
Bangko Sentral pursuant thereto shall constitute an offense
punishable by imprisonment of not less than five (5) years but
not more than ten (10) years. In case the Revised Penal Code
provides for a greater penalty, then that penalty shall be
imposed.”
Anti-Money Laundering Act:
Sec. 4.1 of Republic Act 9160 states that: “Money laundering
is a crime whereby the proceeds of an unlawful activity AS
HEREIN DEFINED are transacted, thereby making them
appear to have originated from legitimate sources. It is
committed by the following:
a) Any person knowing that any monetary instrument or
property represents, involves, or relates to, the proceeds of
any unlawful activity, transacts or attempts to transact said
monetary instrument or property.
b) Any person knowing that any monetary instrument or
property involves the proceeds of any unlawful activity,
performs or fails to perform any act as a result of which he
facilitates the offense of money laundering referred to in
paragraph (a) above.
c) Any person knowing that any monetary instrument or
property is required under this Act to be disclosed and filed
with the Anti-Money Laundering
Council (AMLC), fails to do so.”
Definitions:
Covered Transaction is a transaction in cash or other
equivalent monetary instrument involving total amount in
excess of P500,000 within one banking day.
*P500,000 is the threshold/controlling
Suspicious Transaction are transactions, regardless of
amount, where any of the following circumstances exists:
1. There is no underlying legal or trade obligation,
purpose or economic justification;
2. The client is not properly identified;
11

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 any money laundering activity or offense
under this ACT that is about to be, is being or has
been committed; or
7. Any transaction that is similar, analogous or identical
to any of the foregoing.
Sec. 3.i. of Republic Act 9160 states that: “Unlawful activity"
refers to any act or omission or series or combination thereof
involving or having relation, to the following:
(A) Kidnapping for ransom under Article 267 of Act No. 3815,
otherwise known as the Revised Penal Code, as amended;
(14) Kidnapping for ransom
(B) Sections 4, 5, 6, 8, 9, 10, 12,13, 14, 15 and 16 of Republic
Act No.9165, otherwise known as the COMPREHENSIVE
Dangerous Drugs Act of 2002;
(14) Importation of prohibited drugs;
(15) Sale of prohibited drugs;
(16) Administration of prohibited drugs;
(17) Delivery of prohibited drugs
(18) Distribution of prohibited drugs
(19) Transportation of prohibited drugs
(20) Maintenance of a Den, Dive or Resort for prohibited users
(21) Manufacture of prohibited drugs
(22) Possession of prohibited drugs
(23) Use of prohibited drugs
(24) Cultivation of plants which are sources of prohibited
drugs
(25) Culture of plants which are sources of prohibited drugs
(C) Section 3 paragraphs b, c, e, g, h and i of Republic Act No.
3019, as amended, otherwise known as the Anti-Graft and
Corrupt Practices Act;
(14) Directly or indirectly requesting or receiving any gift,
present, share, percentage or benefit for himself or for any
other person in connection with any contract or transaction
between the Government and any party, wherein the public
officer in his official capacity has to intervene under the law;
(15) Directly or indirectly requesting or receiving any gift,
present or other pecuniary or material benefit, for himself or
for another, from any person for whom the public officer, in
any manner or capacity, has secured or obtained, or will
secure or obtain, any government permit or license, in
consideration for the help given or to be given, without
prejudice to Section 13 of R.A. 3019;
(16) Causing any undue injury to any party, including the
government, or giving any private party any unwarranted
benefits, advantage or preference in the discharge of his
official, administrative or judicial functions through manifest
partiality, evident bad faith or gross inexcusable negligence;
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(17) Entering, on behalf of the government, into any contract
or transaction manifestly and grossly disadvantageous to the
same, whether or not the public officer profited or will profit
thereby;
(18) Directly or indirectly having financial or pecuniary
interest in any business contract or transaction in connection
with which he intervenes or takes part in his official capacity,
or in which he is prohibited by the Constitution or by any law
from having any interest;
(19) Directly or indirectly becoming interested, for personal
gain, or having material interest in any transaction or act
requiring the approval of a board, panel or group of which he
is a member, and which exercise of discretion in such
approval, even if he votes against the same or he does not
participate in the action of the board, committee, panel or
group.
(D) Plunder under Republic Act No. 7080, as amended;
(20) Plunder through misappropriation, conversion, misuse or
malversation of public funds or raids upon the public treasury;
(21) Plunder by receiving, directly or indirectly, any
commission, gift, share, percentage, kickbacks or any other
form of pecuniary benefit from any person and/or entity in
connection with any government contract or project or by
reason of the office or position of the public officer
concerned;
(22) Plunder by the illegal or fraudulent conveyance or
disposition of assets belonging to the National Government or
any of its subdivisions, agencies, instrumentalities or
government-owned or controlled corporations or their
subsidiaries;
(23) Plunder by obtaining, receiving or accepting, directly or
indirectly, any shares of stock, equity or any other form of
interest or participation including the promise of future
employment in any business enterprise or undertaking;
(24) Plunder by establishing agricultural, industrial or
commercial monopolies or other combinations and/or
implementation of decrees and orders intended to benefit
particular persons or special interests;
(25) Plunder by taking undue advantage of official position,
authority, relationship, connection or influence to unjustly
enrich himself or themselves at the expense and to the
damage and prejudice of the Filipino people and the Republic
of the Philippines
(E) Robbery and extortion under Articles 294, 295, 296, 299,
300, 301 and 302 of the Revised Penal Code, as amended;
(26) Robbery with violence or intimidation of persons;
(27) Robbery with physical injuries, committed in an
uninhabited place and by a band, or with use of firearms on a
street, road or alley;
(28) Robbery in an uninhabited house or public building or
edifice devoted to worship.
(F) Jueteng and Masiao punished as illegal gambling under
Presidential Decree No. 1602;
(29) Jueteng;
(30) Masiao.
(G) Piracy on the high seas under the Revised Penal Code, as
amended and Presidential Decree No. 532;
(31) Piracy on the high seas;
(32) Piracy in inland Philippine waters;
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(33) Aiding and abetting pirates and brigands.
(H) Qualified theft under Article 310 of the Revised Penal
Code, as amended;
(34) Qualified theft.
(I) Swindling 'under Article 315 of the Revised Penal Code, as
amended;
(35) Estafa with unfaithfulness or abuse of confidence by
altering the substance, quality or quantity of anything of value
which the offender shall deliver by virtue of an obligation to
do so, even though such obligation be based on an immoral or
illegal consideration;
(36) Estafa with unfaithfulness or abuse of confidence by
misappropriating or converting, to the prejudice of another,
money, goods or any other personal property received by the
offender in trust or on commission, or for administration, or
under any other obligation involving the duty to make delivery
or to return the same, even though such obligation be totally
or partially guaranteed by a bond; or by denying having
received such money, goods, or other property;
(37) Estafa with unfaithfulness or abuse of confidence by
taking undue advantage of the signature of the offended party
in blank, and by writing any document above such signature
in blank, to the prejudice of the offended party or any third
person;
(38) Estafa by using a fictitious name, or falsely pretending to
possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions, or by means of
other similar deceits;
(39) Estafa by altering the quality, fineness or weight of
anything pertaining to his art or business;
(40) Estafa by pretending to have bribed any government
employee;
(41) Estafa by postdating a check, or issuing a check in
payment of an obligation when the offender has no funds in
the bank, or his funds deposited therein were not sufficient to
cover the amount of the check;
(42) Estafa by inducing another, by means of deceit, to sign
any document;
(43) Estafa by resorting to some fraudulent practice to ensure
success in a gambling game;
(44) Estafa by removing, concealing or destroying, in whole or
in part, any court record, office files, document or any other
papers.
(J) Smuggling under Republic Act Nos. 455 and 1937;
(45) Fraudulent importation of any vehicle;
(46) Fraudulent exportation of any vehicle;
(47) Assisting in any fraudulent importation;
(48) Assisting in any fraudulent exportation;
(49) Receiving smuggled article after fraudulent importation;
(50) Concealing smuggled article after fraudulent importation;
(51) Buying smuggled article after fraudulent importation;
(52) Selling smuggled article after fraudulent importation;
(53) Transportation of smuggled article after fraudulent
importation;
(54) Fraudulent practices against customs revenue.
(K) Violations under Republic Act No. 8792, otherwise known
as the Electronic Commerce Act of 2000;
K.1. Hacking or cracking, which refers to:
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
(55) unauthorized access into or interference in a computer
system/server or information and communication system; or
(56) any access in order to corrupt, alter, steal, or destroy
using a computer or other similar information and
communication devices, without the knowledge and consent
of the owner of the computer or information and
communications system, including
(57) the introduction of computer viruses and the like,
resulting in the corruption, destruction, alteration, theft or
loss of electronic data messages or electronic document;
K.2. Piracy, which refers to:
(58) the unauthorized copying, reproduction,
(59) the unauthorized dissemination, distribution,
(60) the unauthorized importation,
(61) the unauthorized use, removal, alteration, substitution,
modification,
(62) the unauthorized storage, uploading, downloading,
communication, making available to the public, or
(63) the unauthorized broadcasting, of protected material,
electronic signature or copyrighted works including legally
protected sound recordings or phonograms or information
material on protected works, through the use of
telecommunication networks, such but not limited to, the
internet, in a manner that infringes intellectual property
rights;
K.3. Violations of the Consumer Act or Republic Act No. 7394
and other relevant or pertinent laws through transactions
covered by or using electronic data messages or electronic
documents:
(64) Sale of any consumer product that is not in conformity
with standards under the Consumer Act;
(65) Sale of any product that has been banned by a rule under
the Consumer Act; ,
(66) Sale of any adulterated or mislabeled product using
electronic documents;
(67) Adulteration or misbranding of any consumer product;
(68) Forging, counterfeiting or simulating any mark, stamp,
tag, label or other identification device;
(69) Revealing trade secrets;
(70) Alteration or removal of the labeling of any drug or
device held for sale;
(71) Sale of any drug or device not registered in accordance
with the provisions of the E-Commerce Act;
(72) Sale of any drug or device by any person not licensed in
accordance with the provisions of the E-Commerce Act;
(73) Sale of any drug or device beyond its expiration date;
(74) Introduction into commerce of any mislabeled or banned
hazardous substance;
(75) Alteration or removal of the labeling of a hazardous
substance;
(76) Deceptive sales acts and practices;
(77) Unfair or unconscionable sales acts and practices;
(78) Fraudulent practices relative to weights and measures;
(79) False representations in advertisements as the existence
of a warranty or guarantee;
(80) Violation of price tag requirements;
(81) Mislabeling consumer products;
(82) False, deceptive or misleading advertisements;
(83) Violation of required disclosures on consumer loans;
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(84) Other violations of the provisions of the E-Commerce Act;
(L) Hijacking and other violations under Republic Act No.
6235; destructive arson and murder, as defined under the
Revised Penal Code, as amended, including those perpetrated
by terrorists against non-combatant persons and similar
targets;
(85) Hijacking;
(86) Destructive arson;
(87) Murder;
(88) Hijacking, destructive arson or murder perpetrated by
terrorists against non-combatant persons and similar targets;
(M) Fraudulent practices and other violations under Republic
Act No. 8799, otherwise known as the Securities Regulation
Code of 2000;
(89) Sale, offer or distribution of securities within the
Philippines without a registration statement duly filed with
and approved by the SEC;
(90) Sale or offer to the public of any pre-need plan not in
accordance with the rules and regulations which the SEC shall
prescribe;
(91) Violation of reportorial requirements imposed upon
issuers of securities;
(92) Manipulation of security prices by creating a false or
misleading appearance of active trading in any listed security
traded in an Exchange or any other trading market;
(93) Manipulation of security prices by effecting, alone or with
others, a series of transactions in securities that raises their
prices to induce the purchase of a security, whether of the
same or different class, of the same issuer or of a controlling,
controlled or commonly controlled company by others;
(94) Manipulation of security prices by effecting, alone or with
others, series of transactions in securities that depresses their
price to induce the sale of a security, whether of the same or
different class, of the same issuer or of a controlling,
controlled or commonly controlled company by others;
(95) Manipulation of security prices by effecting, alone or with
others, a series of transactions in securities that creates active
trading to induce such a purchase or sale though manipulative
devices such as marking the close, painting the tape,
squeezing the float, hype and dump, boiler room operations
and such other similar devices;
(96) Manipulation of security prices by circulating or
disseminating' information that the price of any security listed
in an Exchange will or is likely to rise or fall because of
manipulative market operations of anyone or more persons
conducted for the purpose of raising or depressing the price
of the security for the purpose of inducing the purchase or
sale of such security;
(97) Manipulation of security prices by making false or
misleading statements with respect to any material fact;
which he knew or had reasonable ground to believe was so
false and misleading, for the purpose of inducing the
purchase or sale of any security listed or traded in an
Exchange;
(98) Manipulation of security prices by effecting, alone or with
others, any series of transactions for the purchase and/or sale
of any security traded in an Exchange for the purpose of
pegging, fixing or stabilizing the price of such security, unless
Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro
otherwise allowed by the Securities Regulation Code or by the
rules of the SEC;
(99) Sale or purchase of any security using any manipulative
deceptive device or contrivance;
(100) Execution of short sales or stop-loss order in connection
with the purchase or sale of any security not in accordance
with such rules and regulations as the SEC may prescribe as
necessary and appropriate in the public interest or the
protection of the investors;
(101) Employment of any device, scheme or artifice to
defraud in connection with the purchase and sale of any
securities;
(102) Obtaining money or property in connection with the
purchase and sale of any security by means of any untrue
statement of a material fact or any omission to state a
material fact necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading;
(103) Engaging in any act, transaction, practice or course of
action in the sale and purchase of any security which operates
or would operate as a fraud or deceit upon any person;
(104) Insider trading;
(105) Engaging in the business of buying and selling securities
in the Philippines as a broker or dealer, or acting as a
salesman, or an associated person of any broker or dealer
without any registration from the Commission;
(106) Employment by a broker or dealer of any salesman or
associated person or by an issuer of any salesman, not
registered with the SEC; ,
(107) Effecting any transaction in any security, or reporting
such transaction, in an Exchange or using the facility of an
Exchange which is not registered with the SEC;
(108) Making use of the facility of a clearing agency which is
not registered with the SEC;
(109) Violations of margin requirements;
(110) Violations on the restrictions on borrowings by
members, brokers and dealers;
(111) Aiding and Abetting in any violations of the Securities
Regulation Code;
(112) Hindering, obstructing or delaying the filing of any
document required under the Securities Regulation Code or
the rules and regulations of the SEC;
(113) Violations of any of the provisions of the implementing
rules and regulations of the SEC;
(114) Any other violations of any of the provisions of the
Securities Regulation Code.
(N) Felonies or offenses of a similar nature to the afore-
mentioned unlawful activities that are punishable under the
penal laws of other countries.
In determining whether or not a felony or offense punishable
under the penal laws of other countries, is "of a similar
nature", as to constitute the same as an unlawful activity
under the AMLA, the nomenclature of said felony or offense
need not be identical to any of the predicate crimes listed
under Rule 3.i.”
Safe Harbor Provisions:
Sec. 9.3.e of Republic Act 9160 states that: “No
administrative, criminal or civil proceedings, shall lie against
14
 Commercial Law Review
Atty. Carlo Vincent G. Balicas
Banking Laws
Maria Zarah – Villanueva - Castro

any person for having made a covered transaction report or a

suspicious transaction report in the regular performance of
his duties and in good faith, whether or not such reporting
results in any criminal prosecution under this Act or any other
Philippine law.”

Truth in Lending Act:

Sec. 4 of Republic Act No. 3765 states that: “Any creditor

shall furnish to each person to whom credit is extended, prior
to the consummation of the transaction, a clear statement in
writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of the property or service
to be acquired;
(2) the amounts, if any, to be credited as down payment
and/or trade-in;
(3) the difference between the amounts set forth under
clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be
paid by such person in connection with the transaction but
which are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and
centavos; and
(7) the percentage that the finance bears to the total amount
to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.”
*Failure to comply with the Truth in Lending Act, the contract
of loan is still valid however, the bank cannot recover finance
charges.
Purpose: To avoid hidden charges; to know the actual amount
borrowed.

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