GENERAL BANKING LAW OF 2000 (RA 8791) 4.4.

Regular investigation which shall not be oftener than once a

year from the last date of examination to determine whether an
A. Declaration of Policy institution is conducting its business on a safe or sound basis:
SECTION 2. The State recognizes the vital role of banks in Provided, That the deficiencies/irregularities found by or
providing an environment conducive to the sustained discovered by an audit shall be immediately addressed;
development of the national economy and the fiduciary nature of
4.5. Inquiring into the solvency and liquidity of the institution (2-
banking that requires high standards of integrity and D); or
performance. In furtherance thereof, the State shall promote and
maintain a stable and efficient banking and financial system that 4.6. Enforcing prompt corrective action. (n)
is globally competitive, dynamic and responsive to the demands
of a developing economy. (n) The Bangko Sentral shall also have supervision over the
operations of and exercise regulatory powers over quasi-banks,
B. Banks covered, definition and classification of banks trust entities and other financial institutions which under special
SECTION 3. Definition and Classification of Banks. laws are subject to Bangko Sentral supervision. (2-Ca)
"Banks" shall refer to entities engaged in the lending of funds
obtained in the form of deposits. For the purposes of this Act, "quasi-banks" shall refer to entities
engaged in the borrowing of funds through the issuance,
Banks shall be classified into: endorsement or assignment with recourse or acceptance of
deposit substitutes as defined in Section 95 of Republic Act No.
a. Universal Banks (UB) banks that have the authority to 7653 (hereafter the "New Central Bank Act") for purposes of
relending or purchasing of receivables and other obligations. (2-
exercise, in addition to the powers authorized for a commercial
Da)
bank, the powers of an investment house and the power to invest
in non-allied enterprises.[13] SECTION 5. Policy Direction; Ratios, Ceilings and Limitations.
b. Commercial Banks (CB) banks that have, in addition to the The Bangko Sentral shall provide policy direction in the areas of
general powers incident to corporations, all such powers as may money, banking and credit. (n)
be necessary to carry on the business of commercial banking,
such as accepting drafts and issuing letters of credit; discounting For this purpose, the Monetary Board may prescribe ratios,
ceilings, limitations, or other forms of regulation on the different
and negotiating promissory notes, drafts, bills of exchange, and
types of accounts and practices of banks and quasi-banks which
other evidences of debt; accepting or creating demand deposits; shall, to the extent feasible, conform to internationally accepted
receiving other types of deposits and deposit substitutes; buying standards, including those of the Bank for International
and selling foreign exchange and gold or silver bullion; acquiring Settlements (BIS). The Monetary Board may exempt particular
marketable bonds and other debt securities; and extending categories of transactions from such ratios, ceilings and
credit, subject to such rules as the Monetary Board may limitations, but not limited to exceptional cases or to enable a
promulgate.[14] bank or quasi-bank under rehabilitation or during a merger or
consolidation to continue in business with safety to its creditors,
c. Rural Banks banks that are created to make needed credit
depositors and the general public. (2-Ca)
available and readily accessible in the rural areas for purposes of
promoting comprehensive rural development.[15] D. Board of Directors
Thrift Banks banks that include savings and mortgage SECTION 15. Board of Directors. The provisions of the
banks, private development banks, and stock savings and loan Corporation Code to the contrary notwithstanding, there shall be
associations. at least five (5), and a maximum of fifteen (15) members of the
Cooperative Banks banks that primarily provide board of directors of bank, two (2) of whom shall be independent
financial, banking and credit services to cooperative directors.
organizations and their members.[16]
Islamic Banks Charter of Al Amanah Islamic Investment An "independent director" shall mean a person other than an
Bank of the officer or employee of the bank, its subsidiaries or affiliates or
Philippines.[17] related interests. (n)
d. Other classification of banks as determined by the Monetary Non-Filipino citizens may become members of the board of
Board (MB) of the BSP. directors of a bank to the extent of the foreign participation in the
equity of said bank. (Sec. 7, RA 7721)
C. Rule on bank operations The meetings of the board of directors may be conducted through
modern technologies such as, but not limited to, teleconferencing
and video-conferencing. (n)
SECTION 4. Supervisory Powers. The operations and activities
of banks shall be subject to supervision of the Bangko Sentral. E. Liability of banks for tort or fraudulent scheme of its
"Supervision" shall include the following: officers

4.1. The issuance of rules of conduct or the establishment of

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; F. Liability of banks for acts and contracts of their branch
manager and other officers
4.3. Overseeing to ascertain that laws and regulations are
complied with;
 55.2. No borrower of a bank shall
(a) Fraudulently overvalue property offered as security for a loan
or other credit
accommodation from the bank;
G. Relationship between bank and depositor
There is a debtor-creditor relationship between the bank and its (b) Furnish false or make misrepresentation or suppression of
depositor. The bank is the debtor and the depositor is the material facts for the purpose
creditor. The depositor lends the bank money and the bank
of obtaining, renewing, or increasing a loan or other credit
agrees to pay the depositor on demand. The savings deposit
accommodation or extending
agreement between the bank and the depositor is the contract the period thereof;
that determines the rights and obligations of the parties.
(c) Attempt to defraud the said bank in the event of a court
H. Standard of diligence required of banks for deposits action to recover a loan or other
Extraordinary diligence. The appropriate standard of diligence credit accommodation; or
must be very high, if not the highest, degree of diligence; highest
degree of care (PCI Bank vs. CA, 350 SCRA 446, PBCom vs. (d) Offer any director, officer, employee or agent of a bank any
CA, G.R. No. 121413, 29 Jan. 2001) This applies only to cases gift, fee, commission, or any
where banks are acting in their fiduciary capacity, that is, as other form of compensation in order to influence such persons
into approving a loan or
depository of the deposits of their depositors. (Reyes v. CA,
other credit accommodation application.
G.R. No. 118492, Aug. 15, 2001)
55.3. No examiner, officer or employee of the Bangko Sentral or
I. Duty on bank accounts of clients of any department, bureau, office,
branch or agency of the Government that is assigned to
supervise, examine, assist or render
technical assistance to any bank shall commit any of the acts
enumerated in this Section or
aid in the commission of the same. (87-Aa)
The making of false reports or misrepresentation or suppression
of material facts by personnel of
the Bangko Sentral ng Pilipinas shall constitute fraud and shall be
subject to the administrative and
criminal sanctions provided under the New Central Bank Act.
J. Obligation of banks on signature of clients and forgeries 55.4. Consistent with the provisions of Republic Act No. 1405,
otherwise known as the Banks
Secrecy Law, no bank shall employ casual or nonregular
personnel or too lengthy
probationary personnel in the conduct of its business involving
bank deposits.

SECTION 56. Conducting Business in an Unsafe or

Unsound Manner. In determining
K. Fraudulent acts of bank officers whether a particular act or omission, which is not otherwise
prohibited by any law, rule or regulation
affecting banks, quasi-banks or trust entities, may be deemed as
SECTION 54. Prohibition to Act as Insurer. A bank shall conducting business in an unsafe or
not directly engage in insurance unsound manner for purposes of this Section, the Monetary Board
business as the insurer. (73) shall consider any of the following
SECTION 55. Prohibited Transactions. circumstances:

55.1. No director, officer, employee, or agent of any bank shall 56.1. The act or omission has resulted or may result in material
loss or damage, or abnormal risk
(a) Make false entries in any bank report or statement or or danger to the safety, stability, liquidity or solvency of the
participate in any fraudulent institution;
transaction, thereby affecting the financial interest of, or causing 56.2. The act or omission has resulted or may result in material
damage to, the bank or loss or damage or abnormal risk
any person; to the institution's depositors, creditors, investors, stockholders
(b) Without order of a court of competent jurisdiction, disclose to or to the Bangko Sentral or
any unauthorized person to the public in general;
any information relative to the funds or properties in the custody
of the bank belonging to 56.3. The act or omission has caused any undue injury, or has
private individuals, corporations, or any other entity: Provided, given any unwarranted benefits,
That with respect to bank advantage or preference to the bank or any party in the
deposits, the provisions of existing laws shall prevail; discharge by the director or officer of
his duties and responsibilities through manifest partiality, evident
(c) Accept gifts, fees or commissions or any other form of bad faith or gross
remuneration in connection with inexcusable negligence; or
the approval of a loan or other credit accommodation from said
bank; 56.4. The act or omission involves entering into any contract or
transaction manifestly and grossly
(d) Overvalue or aid in overvaluing any security for the purpose disadvantageous to the bank, quasi-bank or trust entity, whether
of influencing in any way the or not the director or officer
actions of the bank or any bank; or profited or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in
(e) Outsource inherent banking functions. conducting its business in an unsafe or
 unsound manner, the Monetary Board may, without prejudice to
the administrative sanctions provided in the part of a depositor.[21] Conversely, the depositor has every
Section 37 of the New Central Bank Act, take action under
right to apply his deposit in a bank against his loan from such
Section 30 of the same Act and/or immediately
exclude the erring bank from clearing, the provisions of law to the bank.[22]
contrary notwithstanding. (n)

SECTION 57. Prohibition on Dividend Declaration. No

bank or quasi-bank shall declare
dividends greater than its accumulated net profits then on hand, Kinds of Deposits
deducting therefrom its losses and bad
debts. Neither shall the bank nor quasi-bank declare dividends, if
at the time of declaration: The basic types of deposit are demand deposits, savings

account, time deposits, and NOW account.

57.1 Its clearing account with the Bangko Sentral is overdrawn; or
Demand deposits are those liabilities of banks which
57.2 It is deficient in the required liquidity floor for government
are denominated in Philippine currency and are subject to
deposits for five (5) or more
payment in legal tender upon demand by presentation of checks.
consecutive days; or
In here, no interest is paid by the bank because the depositor can
take out his funds any time. It is called demand deposit because
57.3 It does not comply with the liquidity standards/ratios
the depositor can withdraw the money he deposited on the very
prescribed by the Bangko Sentral for
same day.
purposes of determining funds available for dividend declaration;
Savings Account, which is the most common type of
or
deposit, is usually evidenced by a passbook. Under the fine print,
if you deposit today, you cannot withdraw the amount until 60
57.4 It has committed a major violation as may be determined by
days later. Bank pays an interest rate, but not as high as time
the Bangko Sentral. (84a)
deposits.
Time Deposit is an account with fixed term. The
L. Various dealing with deposits interest rate is stipulated depending on the number of days.
During this period, the money deposited cannot be withdrawn. It
has a higher rate of interest than saving account.
1. Deposit Function Negotiable Order of Withdrawal (NOW) Account is
an interest-bearing deposit account that combines the payable on
demand feature of checks and investment feature of savings
1. Nature of the Function accounts.
Other Account is one that may be opened by one
individual or by two or more persons. Whenever two or more
Deposit is one of the core banking functions. While the function is persons open an account, the same may be an and/or account
or an and account.
referred to as deposit, it is strictly simple loan where the bank
NB: A bank other than a UB or CB cannot accept or create
is the debtor and the depositor is the creditor. Fixed, savings and
demand deposits except upon prior approval of, and subject to
current deposits of money in banks and similar institutions shall
such conditions and rules as may be prescribed by the Monetary
be governed by the provisions concerning simple loan (Article
Board.[23]
1980, Civil Code of the Philippines).
Moreover, the bank is under the obligation to treat deposit
Since the bank is the borrower, it can make use as its own the accounts of it depositors with meticulous care. It must bear the
money deposited, and the amount is not held in trust for the blame for failing to discover the mistake of its employees despite
depositor nor is it kept for safekeeping.[18] Bank officers cannot the established procedure requiring bank papers to pass through
also be held liable for estafa if they authorized the use of the bank personnel whose duty it is to check and countercheck them
money deposited by the depositor.[19] Third persons who may for possible errors.[24] As a business affected with public interest
have the right to the money deposited cannot hold the bank and because of the nature of its functions, a bank is under
responsible unless there is a court order or garnishment, since obligation to treat the accounts of its depositors with meticulous
the duty of the bank is to the creditor-depositor and not to third case, always having in mind the fiduciary nature of their
persons.[20] relationship.[25]

Note on Safety Deposit Boxes: In the case of rent of safety

deposit box, the contract is a special kind of deposit and cannot

In San Carlos Milling Co., Ltd v. BPI, the Court declared that be characterized as an ordinary contract of lease because the full
banks are run for gain, and they solicit deposits in order that and absolute possession and control of the deposit box is not
they can use the money for that very purpose. For the same given to the renters. The prevailing rule is that the relation
reason, it has been held that a bank has a right of set off of the between the bank renting out and the renter is that of bailer and
deposits in its hands for the payment of any indebtedness to it on bailee the bailment being for hire and mutual benefit.[26]
 (b) loans and other credit accommodations fully guaranteed by the
government as to the payment of principal and interest;
(c) loans and other credit accommodations secured by U.S. treasury notes
and other securities issued by central governments and central banks of
M. Limit on loans, credit accommodations and guarantees foreign countries with the highest credit quality given by any two
(single borrowers limit) internationally accepted rating agencies;
- Coverage (d) loans and other credit accommodations to the extent covered by the
Except as the Monetary Board may otherwise prescribe for hold-out on or assignment of, deposits maintained in the lending bank and
reasons of national interest, the total amount of loans, credit held in the Philippines;
(e) loans, credit accommodations and acceptances under letters of credit
accommodations and guarantees as may be defined by the
to the extent covered by margin deposits; and
Monetary Board that may be extended by a bank to any person,
(f) other loans or credit accommodations which the Monetary Board may
partnership, association, corporation or other entity shall at no
from time to time specify as non-risk items.
time exceed twenty percent (20%) of the net worth of such bank.
The basis for determining compliance with single-borrower limit is N. Restriction on bank exposure to DOSRI
the total credit commitment of the bank to the borrower. The GENERAL RULE is: a director or officer of any bank shall
neither, directly or indirectly, for himself or as the representative
35.2. Unless the Monetary Board prescribes otherwise, the total or agent of others, borrow from such bank; nor become a
amount of loans, credit accommodations and guarantees guarantor, indorser or surety for loans from such bank to others,
prescribed in the preceding paragraph may be increased by an or in any manner be an obligor or incur any contractual liability to
additional ten percent (10%) of the net worth of such bank the bank.
provided the additional liabilities of any borrower are adequately The EXCEPTION is when there is a written approval of the
secured by trust receipts, shipping documents, warehouse majority of all the directors of the bank, excluding the director
receipts or other similar documents transferring or securing title concerned. The required approval shall be entered upon the
covering readily marketable, non-perishable goods which must be records of the bank and a copy of such entry shall be transmitted
fully covered by insurance forthwith to the appropriate supervising and examining
department of the BSP
-Inclusion of parent corporation
D. Even if a parent corporation, partnership, association, entity - Principles involved
or an individual who owns or controls a majority interest in such
entities has no liability to the bank, the liabilities of subsidiary
corporations or members of the partnership, association, entity or
such individual shall be combined under certain circumstances,
including but not limited to any of the following situations: (a) the
parent corporation, partnership, association, entity or individual
guarantees the repayment of the liabilities; (b) the liabilities were
incurred for the accommodation of the parent corporation or
another subsidiary or of the partnership or association or entity
or such individual; or (c) the subsidiaries though separate entities
operate merely as departments or divisions of a single entity
For purposes of this section, loans, other credit accommodations and
guarantees shall exclude:
(a) loans and other credit accommodations secured by obligations of the
Bangko Sentral or of the Philippine Government;