Banks may have up to 21 directors for cases of mergers and consolidation. [Sec.

17, General Banking

Act]

GENERAL BANKING ACT

The Monetary Board may revoke the license to transact business in the Philippines of any foreign bank, if
it finds that:

1. (1) the foreign bank is insolvent; or

2. (2) inimminentdangerthereof;or
3. (3) its continuance in business will involve probable loss to those transacting business with it.
[Sec. 78, GBA]

LIMITATIONS
CONSENT OF APPROPRIATE GOVERNMENT AGENCY [SEC. 79]

In the case of merger or consolidation of banks or banking institutions, building and loan
associations, trust companies, insurance companies, public utilities, educational institutions and
other special corporations governed by special laws, the favorable recommendation of the
appropriate government agency shall first be obtained

The New Central Bank Act [RA 7653]

A. STATE POLICIES

The State shall maintain a central monetary authority that shall function and operate as an independent
and accountable body corporate in the discharge of its mandated responsibilities concerning money,
banking and credit. [Sec. 1]

In line with this, the Bangko Sentral ng Pilipinas is:

1. (1) A central monetary authority;

2. (2) An independent and accountable body; and
3. (3) A government-owned corporation that enjoys fiscal and administrative autonomy. [Secs. 1 &
2, NCBA]

B. SALIENT FEATURES

1. (1) Assurance of BSP independence by providing for the majority of the members of the
Monetary Board to come from the private sector. [Sec. 6]
 2. (2) The BSP may now concentrate on monetary policy, and will phase out its fiscal agency
functions and its responsibilities in respect of finance companies without quasi-banking
functions, which in the past, had distracted it from its primary function. The latter has been
assumed by the Securities and Exchange Commission. [Secs. 3, 129, & 130, NCBA]
3. (3) Provides safeguards to ensure that unlike the old Central Bank which sustained huge losses,
the BSP would have a positive net income position by the following provisions:

(a) CapitalizationofP50B;[Sec.2,NCBA]

(b) Maintenance of positive net foreign

asset position; [Sec.71, NCBA]

(c) Charging interests on all loans and advances to banks; [Sec. 85, NCBA]

(d) Authority to collect interests on loans and advances to closed financial institutions; [Sec. 85,
NCBA] and

(e) BSP can't acquire shares, including by collateral, nor participate in neither ownership nor
management of enterprises, nor engage in development banking or financing [Sec. 128, NCBA]

CREATION OF THE BANGKO SENTRAL NG PILIPINAS (BSP)

There is hereby established an independent central monetary authority, which shall be a body corporate
known as the Bangko Sentral ng Pilipinas [Sec. 2, NCBA].

The BSP replaced the Central Bank of the Philippines, and shares the same functions, but is a new entity
altogether.

C.1. NATURE OF THE BSP

1. (1) A central monetary authority;

2. (2) An independent and accountable body; and
3. (3) A government-owned corporation but enjoys fiscal and administrative autonomy. [Secs. 1 &
2, NCBA]

C.2. CAPITALIZATION

The BSP shall have a capitalization of P50B to be fully subscribed by the Government. [Sec. 2, NCBA]

D. RESPONSIBILITY AND PRIMARY OBJECTIVE

D.1. PRIMARY OBJECTIVES

1. (1) To maintain price stability conducive to balanced and sustainable economic growth.
2. (2) To promote and maintain monetary stability and the convertibility of the peso.
D.2. OTHER RESPONSIBILITIES

1. (1) To provide policy directions in the areas of money, banking, and credit
2. (2) Tosuperviseoperationsofbanks
3. (3) Regulates finance companies and non- bank financial institutions performing quasi-banking
functions [Sec. 3, NCBA]

D.3. BSP AS TRANSFEREE OF PHILIPPINE CENTRAL BANK POWERS

All powers, duties and functions vested by law in the Central Bank of the Philippines not inconsistent
with the NCBA shall be deemed transferred to the BSP. All references to the Central Bank of the
Philippines in any law or special charters shall be deemed to refer to the BSP. [Sec. 136, NCBA]

E. MONETARY BOARD

The body through which the powers and functions of the Bangko Sentral are exercised [Sec 6, NCBA]

E.1. POWERS AND FUNCTIONS

1. (1) Issue rules and regulations it considers necessary for the effective discharge of the
responsibilities and exercise of the powers vested in it;
2. (2) Direct the management, operations, and administration of the BSP, reorganize its personnel
and issue such rules and regulations as it may deem necessary or desirable for this purpose;
3. (3) Establish a human resource management system which governs the selection, hiring,
appointment, transfer, promotion, or dismissal of all personnel;
4. (4) Adopt an annual budget for and authorize such expenditures by BSP as are in the interest of
the effective administration and operations of Bangko Sentral in accordance with applicable laws
and regulations; and
5. Indemnify its members and other officials of the BSP, including personnel of the departments
performing supervision and examination functions, against all costs and expenses reasonably
incurred by such persons in connection with any civil or criminal action, suit or proceeding, to
which any of them may be made a party by reason of the performance of his functions or duties,
unless such members or other officials is found to be liable for negligence or misconduct. [Sec.
15, NCBA]

E.2. COMPOSITION

The MB shall be composed of 7 members appointed by the President with a 6-year term. [Sec. 6, NCBA]

MEMBERS

1. (1) The BSP Governor or his designated alternate (a deputy governor);

2. (2) A Cabinet member to be designated by the President or his designated alternate (an
Undersecretary in his department); and
3. (3) 5 members from the private sector [Sec. 6, NCBA]

E.3. REAPPOINTMENT

No member of the MB may be reappointed more than once. [Sec. 6, NCBA]

E.4. QUALIFICATIONS

1. (1) Citizenship – Natural-born citizens of the Philippines;

2. (2) Age

General Rule: At least 35 years old Exception: Governor must be at least 40 years old;

3. (3) Ofgoodmoralcharacter;
4. (4) Of unquestionable integrity;
5. (5) Of known probity and patriotism; and
6. (6) With recognized competence in social and economic disciplines. [Sec. 8, NCBA]

E.5. DISQUALIFICATIONS

In addition to the disqualifications under the Code of Conduct and Ethical Standards for Public Officials
and Employees [RA 6713], a member of the Monetary Board is disqualified by:

1. (1) Direct connection with any multilateral banking or financial institution; or

2. (2) Substantial interest in any private bank in the Philippines, within 1 year prior to his
appointment [Sec. 9, NCBA]

E.6. PROHIBITION ON MEMBERS OF THE MB

1. (1) Being a director, officer, employee,

consultant, lawyer, agent or stockholder of any bank, quasi-bank, or any other institution which is
subject to supervision or examination by the BSP (remedy: resign and divest interests before
assuming office];

2. (2) Holding any other public office or public employment during their tenure; and
3. (3) Being employed in any multilateral banking or financial institution within 2 years after the
expiration of his term. Exception: When he serves as an official representative of the government
to such institution. [Sec. 9, NCBA]

E.7. GROUNDS FOR REMOVAL OF ANY

MEMBER OF THE MB

1. (1) If the member is subsequently disqualified under Sec. 8;

2. (2) If he is physically or mentally incapacitated that he cannot properly discharge his duties and
responsibilities and such incapacity has lasted for more than 6 months;
3. (3) If he is guilty of acts or operations which are of fraudulent or illegal character or which are
manifestly opposed to the aims and interests of the BSP; and
4. (4) If he no longer possesses the qualifications under Sec. 8. [Sec. 10, NCBA]

E.8. VACANCIES, HOW FILLED

 Causes:
(1) Death;
(2) Resignation; or (3) Removal.

Effect: A new member will be appointed to complete the unexpired period of the term of the
member concerned. [Sec. 7, NCBA]

E.9. CIVIL LIABILITY OF MEMBERS OF THE MB

Members of the MB, officials, examiners, and employees of the BSP are liable when they:

(1) Willfully violate the provisions of the NCBA;

(2) Are guilty of negligence, abuses or acts of malfeasance or misfeasance; or

(3) Fail to exercise extraordinary diligence in the performance of his duties;

(4) Disclose confidential information, or information relating to MB discussions or resolutions,

or about the BSP’s confidential operations

Exceptions:

(a) Disclosure is in connection with the performance of official functions with the BSP;

(b) MB or BSP Governor’s prior authorization; or

(5) Use confidential information for their personal gain –or– to the detriment of the Government,
BSP, or 3rd Parties [Sec. 16, NCBA]

F. HOW THE BSP HANDLES BANKS IN DISTRESS

WHEN BANKS ARE IN DISTRESS

Illiquidity – occurs when the bank is not liquid. It means that the bank cannot meet its current liabilities.

Liquidity is the ability of an asset to be converted into cash. An entity is liquid when

it is able to pay its liabilities when they fall due.

o Illiquidity is handled by conservatorship.

Insolvency – When the actual market value of assets are insufficient to pay its liabilities, not considering
capital stock and surplus which are not liabilities for such purpose. An entity is insolvent when it is
unable to meet current and long-term obligations.

o In contrast, a bank is solvent when current assets are more than current liabilities, providing the ability
to pay debts. It is able to meet its long term obligations/liabilities.
o Insolvency is handled by receivership and/or closure.

F.1. CONSERVATORSHIP

Conservatorship involves the appointment of a conservator to preserve the assets of the bank when the
latter is illiquid, and take measures

I. GROUNDS FOR APPOINTMENT OF A CONSERVATOR

Whenever, on the basis of a report submitted by the appropriate supervising or examining department, the
MB finds that a bank or quasi-bank is:

1. (1) In a state of continuing inability; or

2. (2) Unwillingness to maintain a condition of liquidity deemed adequate to protect the interest of
depositors and creditors [Sec. 29, NCBA]

II. REQUISITES IN PLACING A BANK UNDER CONSERVATORSHIP

(1) There must be a report submitted by the appropriate supervising or examining department of
the BSP;

(2) There must be a finding that the bank or quasi-bank falls under either of the grounds for
conservatorship.

3) The Board of Directors must be informed in writing of the order of the Monetary Board
directing conservatorship.

III. DURATION
Shall not exceed 1 year [Sec. 29, NCBA]

IV. EXPENSES

The expenses attendant to the conservatorship shall be borne by the bank or quasi-bank concerned
[Sec. 29, NCBA]

V. GROUNDS FOR TERMINATION OF CONSERVATORSHIP BY MB

1. (1) When MB is satisfied that the institution can continue to operate on its own and the
conservatorship is no longer necessary; or
2. (2) When, on the basis of the report of the conservator or of its own findings, the MB determines
that the continuance in business of the institution would involve probable loss to its depositors or
creditors (effect: the bank or quasi-bank would then be placed under receivership) [Sec. 29,
NCBA]

VI. EFFECTS OF CONSERVATORSHIP

 (1) Bank/Quasi-bank personality retains juridical personality
(2) Not a precondition to the designation of a receiver [Sec. 30, NCBA], and;

(3) Perfected transactions cannot be repudiated [First Philippine International Bank v. CA, G.R.
No. 115849 (1996)]

While the Central Bank law gives vast and far reaching powers to the conservator of a bank, such
powers must be related to the preservation of the assets of the bank, the reorganization of the
management and the restoration of viability. Such powers cannot extend to the post-facto
repudiation of perfected transactions, otherwise they would infringe against the non-impairment
clause of the Constitution. [First Philippine International Bank v. CA, G.R. No. 115849 (1996)]

VII. QUALIFICATIONS OF A CONSERVATOR

The conservator should be competent and knowledgeable in bank operations and management. [Sec. 29,
NCBA]

The appointment of a conservator shall be vested exclusively in the MB. [Sec. 30, NCBA]

Note that the conservator is a natural person to be appointed by the Monetary Board. In contrast, the
receiver is always the PDIC.

VIII. POWERS AND DUTIES OF A CONSERVATOR

1. (1) To take charge of the assets, liabilities, and the management thereof;
2. (2) Toreorganizethemanagement;
3. (3) To collect all monies and debts due said institution;
4. (4) To exercise all powers necessary to restore its viability;
5. (5) To report and be responsible to the MB;
6. (6) To overrule or revoke the actions of the previous management and board of directors of the
bank or quasi-bank. [Sec. 29, NCBA]

However, note that the management of the bank is still with its board of directors and management.
However, the conservator may revoke their actions. In contrast, in receivership, the receiver takes over
the management of the bank.

IX. THE CONSERVATOR CANNOT REPUDIATE PERFECTED CONTRACTS

While the Central Bank law gives vast and far reaching powers to the conservator of a bank, such powers
must be related to the preservation of the assets of the bank, the reorganization of the management and the
restoration of viability. Such powers cannot extend to the post-facto repudiation of perfected transactions,
otherwise they would infringe against the non-impairment clause of the Constitution. [First Philippine
International Bank v. CA, G.R. No. 115849 (1996)]

X. REMUNERATION
General Rule: The conservator shall receive remuneration in an amount not to exceed 2/3 of the salary of
the president of the institution in 1 year, payable in 12 equal monthly payments.

Exception: A conservator connected with the BSP, in which case said conservator shall not be entitled to
receive any remuneration or emolument. [Sec. 29, NCBA]

F.2. CLOSURE

I. CONCEPT

The MB may summarily and without need for prior hearing close a banking institution and place it under
receivership.

Receivership is equivalent to an injunction to restrain the bank in any way. Thus, the appointment of a
receiver operates to suspend the authority of the bank and of its directors and officers over its property
and effects [Villanueva v. CA, G.R. No. 114870 (1995)]

Receivership refers to the stage within which the PDIC manages the affairs of the closed bank and
preserves its assets for the benefit of creditors [RA 9302, Sec. 10(a,b)]

III. GROUNDS

Under the GBL

When a banking institution:

1. (1) Notifies the BSP or publicly announces a bank holiday; or

2. (2) Suspends the payment of its deposit liabilities continuously for more than 30 days in any
manner[Sec. 53, GBL]
3. (3) Persistence in conducting business in an unsafe or unsound manner [Sec. 56, GBL]

Under the NCBA

Whenever the MB finds that a bank or quasi- bank:

(1) Is unable to pay its liabilities as they become due in the ordinary course of business.

(a) Except for inability to pay caused by extraordinary demands induced by financial panic in the banking
community; (bank run)

(b) Has insufficient realizable assets, as determined by the BSP, 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 Sec. 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution.

(a) Special rule: in this situation, the MB may act summarily and without hearing [Sec. 30,
NCBA]

F.3. RECEIVERSHIP

I. REQUISITES

1. (1) Report of the head of the supervising department involving the bank
2. (2) Finding of the Monetary Board of the existence of any of the grounds for receivership.
3. (3) Decision of the MB to forbid the institution from doing business, which decision may be
done summarily and without need for prior hearing.
4. (4) Notice in writing to the BOD informing the institution of the order of the MB.

II. GROUNDS

Whenever the MB finds that a bank or quasi- bank:

1. (1) Is unable to pay its liabilities as they become due in the ordinary course of business.
Exception: This shall not include inability to pay caused by extraordinary demands induced by
financial panic in the banking community;
2. (2) Has insufficient realizable assets, as determined by the BSP, to meet its liabilities; or
3. (3) Cannot continue in business without involving probable losses to its depositors or creditors;
or
4. (4) Has willfully violated a cease-and-desist order under Sec. 37 that has become final, involving
acts or transactions which amount to fraud or a dissipation of the assets of the institution. Special
rule: in this situation, the MB may act summarily and without hearing [Sec. 30, NCBA]

III. WHO ACTS AS RECEIVER

1. (1) If a banking institution: the PDIC

2. (2) If a quasi-bank: any person of recognized competence in banking or finance [Sec. 30, NCBA]

IV. WHO APPOINTS RECEIVERS

The appointment of a receiver shall be vested exclusively in the MB. [Sec. 30, NCBA]

V. CONSERVATORSHIP RECEIVERSHIP

VIS-À-VIS

The designation of a conservator is not a precondition to the designation of a receiver. [Sec. 30, NCBA]

VI. POWERS AND DUTIES OF A RECEIVER

 1. (1) Immediately gather and take charge of all the assets and liabilities of the institution
2. (2) Administer the assets for the benefit of the creditors
3. (3) Exercise the general powers of a receiver under the Revised Rules of Court
4. (4) Not to pay or commit any act that will involve the transfer or disposition of any asset of the
institution.

Exceptions:

(1) Administrative expenditures;

(2) Receiver may deposit or place funds in non-speculative investments.

(5) Subject to prior approval of the MB, determine, as soon as possible, but not later than 90 days from
take-over, 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 general public.
[Sec. 30, NCBA]

Exceptions:

1. (1) Administrative expenditures;

2. (2) Receiver may deposit or place funds

in non-speculative investments.[Sec. 30, NCBA]

The assets of the institution under receivership and liquidation shall be deemed in custodia legis and shall
be exempt from any order of garnishment, levy, attachment, or execution. [Sec. 30, NCBA]

So, in contrast to a conservator, the receiver takes over the operations of the bank and the management of
its assets.

However, the main duty of a receiver is to, within 90 days of takeover, to determine whether the bank can
be rehabilitated or not. If it can, receivership will continue, or the bank will be placed under
conservatorship. If it cannot, the bank will be liquidated.

VII. CLOSE NOW, HEAR LATER

Sec. 29 of the Central Bank Act does not contemplate prior notice and hearing before a bank may be
directed to stop operations and placed under receivership. It is enough that such action is made subject of
a subsequent judicial review. When the law provides for the filing of a case within 10 days after the
receiver takes charge of the assets of the bank, it is unmistakable that the assailed actions should precede
the filing of the case. The legislature could not have intended to authorize “no prior notice and hearing” in
the bank’s closure and at the same time allow a suit to annul it on the basis of absence thereof [Central
Bank vs. CA and Triumph Savings Bank, GR No. 76118, March 30, 1993]

In other words, when there is a ground for closure and receivership, such closure may be effected without
notice and hearing. The validity of closure may be challenged afterwards.
F.4. LIQUIDATION

I. CONCEPT

After undergoing conservatorship, closure, and/or receivership, if the bank cannot be rehabilitated, it shall
be liquidated

Liquidation refers to the recovery and conversion of assets into cash for distribution to all creditors in
accordance with the rules on concurrence and preference of credits.

II. KINDS OF LIQUIDATION (1) Voluntary liquidation, and (2) Involuntary liquidation

III. VOLUNTARY LIQUIDATION

The Stockholders and the Board of Directors can decide to liquidate a bank in accordance with the
procedure under the Corporation Code.

However, as an additional requirement, written notice of the liquidation should be sent to the MB before
the liquidation is undertaken.

Further, the MB shall have the right to intervene and take such steps as may be necessary to protect the
interests of creditors. [Sec. 68, GBL]

IV. GROUNDS FOR LIQUIDATION

1. (1) The condition of the bank is one of insolvency,

2. (2) Its continuance would involve probable loss to its creditors
3. (3) In both cases, the MB determines that the bank cannot be rehabilitated.

V. HOW INSTITUTED

Should the determination be that the institution cannot be rehabilitated or permitted to resume
business, the MB shall notify in writing the board of directors of the institution of its findings and
direct the receiver to proceed with the liquidation of the institution. [Sec. 30, NCBA]

VI. CHALLENGING THE DECISION OF THE RECEIVER

Only stockholders representing a majority of the capital stock of the bank have the personality to
file a petition for certiorari to be filed within 10 days from receipt by the BOD of the order
directing receivership, conservatorship, or liquidation.

VII. EFFECTS OF LIQUIDATION

1. (1) Retention of juridical personality;

2. (2) Suspension of operations / Stoppage of business;
3. (3) Assets are deemed in custodia legis, i.e., exempt from garnishment, levy or execution;
 4. (4) Stay of execution of judgment to prevent depletion of bank assets;
5. (5) Bank is not liable to pay interest on deposits which accrued during the period of suspension
of operation;
6. (6) Restriction of bank’s capacity to do new business (new loans, deposits) but with obligation to
collect pre-existing debts.

(a) It cannot take new deposits or grant new loans.

(b) However, it can collect pre-existing debts.

7. (7) Deposits do not become preferred credits

VIII. PROCEDURE

(1) The receiver shall file ex parte with the proper RTC, and without requirement of prior notice
or any other action, a petition for assistance in the liquidation of the institution pursuant to the
liquidation plan adopted by the PDIC.

(a) If a quasi-bank, the liquidation plan is adopted by the MB;

2. (2) Upon acquiring jurisdiction, the court shall, upon motion by the receiver after due notice:
1. (a) Adjudicate disputed claims against the institution;
2. (b) Assist the enforcement of individual liabilities of the stockholders, directors, and
officers; and
3. (c) Decide on other issues as may be material to implement the liquidation plan
3. (3) The receiver shall 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. [Sec. 30, NCBA]

IX. SUITS BY RECEIVER

The receiver may institute actions to collect and recover assets or defend actions against
the institution, with the assistance of counsel as he may retain. [Sec. 30, NCBA]

X. DISPOSITIONS

After payment of the cost of proceedings, including reasonable expenses and fees of the
receiver to be allowed by the court, the receiver shall pay the debts of such institution,
under order of the court, in accordance with the rules on concurrence and preference of
credit in the Civil Code. [Sec. 31, NCBA]

All revenues and earnings realized by the receiver in winding up the affairs and
administering the assets of any bank or quasi-bank shall be used to pay the costs of
proceedings, salaries of such personnel whose employment is rendered necessary in the
discharge of the liquidation together with other additional expenses caused thereby. The
 balance of revenues and earnings, after the payment of all said expenses, shall form part
of the assets available to creditors. [Sec. 32. NCBA]

X. COMPARISON OF CONSERVATORSHIP, CLOSURE AND RECEIVERSHIP, AND

LIQUIDATION

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G. HOW THE BSP HANDLES EXCHANGE CRISIS

G.1. LEGAL TENDER POWER

All notes and coins issued by the BSP shall be fully guaranteed by the Government of the
Republic of the Philippines and shall be legal tender in the Philippines for all debts, both
public and private. [Sec. 52, NCBA]

Limitation: Coins shall be legal tender in amounts not exceeding P50 for denominations
of 25 centavos and above, and in amounts not exceeding P20 for denominations of 10
centavos or less.

Exception to Limitation: MB may fix otherwise. [Sec. 52, NCBA]

The maximum amount of coins to be considered as legal tender is: [BSP Circular 537
(2006)]

(1) P1,000.00 for denominations of 1-Piso, 5- Piso and 10-Piso coins; and

(2) P100.00 for denominations of 1-sentimo, 5-sentimo, 10-sentimo, and 25-sentimo

coins.

G.2. RETIREMENT OF OLD NOTES AND COINS

The BSP may call in for replacement:

(1) Notes which are more than 5 years old, and

(2) Coins which are more than 10 years old.

Those called in for replacement remain legal tender until one year from call
After that period, they will no longer be legal tender, but may be exchanged for new
tender, for a period to be determined by the BSP.

After the period for exchange, they cease to be a liability of the BSP and will be
demonetized.

In times of exchange crises, the BSP may, in its discretion, stop issuing legal tender, or
issue more legal tender, as the case may be, in order to achieve exchange stability.

G.3. RATE OF EXCHANGE

The MB shall:

(1) Determine the exchange rate policy of the country;

(2) Determine the rates at which the BSP shall buy and sell spot exchange;

(3) Establish deviation limits from the effective exchange rate or rates as it may deem
proper.

(4) Determine the rates for other types of foreign exchange transactions by the BSP,
including purchases and sales of foreign notes and coins. [Sec. 74, NCBA]

Limitation: The margins between the effective exchange rates and the rates established by
the MB may not exceed the corresponding margins for spot exchange transactions by
more than the additional costs or expenses involved in each type of transactions. [Sec. 74,
NCBA]

I. IN TIMES OF CRISES

The MB may exercise its emergency restrictions on Exchange Operations

• These restrictions may be exercised by a majority vote of the entire MB, i.e. 5 votes.

• The vote must be approved by the President.

These restrictions the BSP may choose to impose are:

(1) Temporary suspension or restriction of sales of exchange by the BSP.

(2) Subjecting all transactions in gold and foreign to license by the BSP, or
 (3) Requiring that any foreign exchange thereafter obtained by any person residing in or
any entity operating in the Philippines be delivered to the BSP or to an agent bank, at
effective exchange rates.(Sec. 74)

Note: These restrictions do not apply to Foreign Currency Deposits under RA 6426.

General Banking Law of 2000

B.1 CORPORATE POWERS

Aside from the powers listed above, banks, generally being in the form of a corporation, also have all the
powers a corporation has.

o The exception is cooperative banks, which are in the form of a cooperative, and have all the powers of a
cooperative under the Cooperatives Code.

B.2. GRANTING OF LOANS; SECURITY REQUIREMENT

The GBL no longer requires credit to be secured.

o This is in contrast to the General Banking Act it replaced, which requires all loans to be secured.

B. 3. STIPULATIONS ON INTEREST

As an accessory to its power to grant loans, banks may stipulate interests.

o With the removal of the limit on imposable interest under CB Circular 905, banks may impose interest
past the legal interest rate of 6% (CB Circular 799-13)

o However, this does not give banks the right to impose excessive interests. A stipulated interest rate may
nevertheless be equitably reduced should the same be found to be iniquitous, unconscionable, and
exorbitant under Art. 1556 of the CC. If such is the case, there is no stipulated rate, and the legal rate
applies. [Dio v. Japor, G.R. No. 154129 (2005)]

o A 3% monthly interest rate has been ruled iniquitous. [Macalinao v. BPI, G.R. No.
175490 (2009)]

o Also, while it is acceptable for banks to stipulate that interest rates on a loan not be
fixed and instead be made dependent on market conditions, there should always be a
reference rate upon which to peg the rates.[Consolidated Bank v. CA, G.R. No. 114286
(2011)]
D. BANK POWERS AND LIABILITIES

D.1. CORPORATE POWERS [SEC. 36, CORPORATION CODE]

(1) Sue and be sued in its corporate name;

(2) Succession;

(3) Adopt and use a corporate seal;

(4) Amend its Articles of Incorporation;

(5) Adopt and amend by-laws;

(6) For stock corporations - issue or sell stocks to subscribers and sell treasury stocks; for
non-stock corporation - admit members to the corporation;

(7) Purchase, receive, take or grant, hold, convey, sell, lease, pledge, mortgage and
otherwise deal with such real and personal property, pursuant to its lawful business;

(8) Enter into merger or consolidation with other corporations as provided in the Code;

(9) Make reasonable donations, including those for the public welfare or for hospital,
charitable, cultural, scientific, civic, or similar purposes: Provided, no corporation,
domestic or foreign, shall give donations in aid of any political party or candidate or for
purposes of partisan political activity;

(10)Establish pension, retirement, and other plans for the benefit of its directors, trustees,
officers and employees; and

(11) Exercise such other powers as may be essential or necessary to carry out its purposes

Presumption of ownership of deposits

It is presumed that money deposited in a bank account belongs to the person in whose
name the deposit account is opened.

A depositor is presumed to be the owner of funds standing in his name in a bank deposit;
and where a bank is not chargeable with notice that the money deposited in such account
is the property of some other person than the depositor, the bank is justified in paying out
the money to the depositor or upon his order, and cannot be liable to any other person as
the true owner. [Fulton Iron Works Co. v. China Banking Corporation, G.R. No. 32576
(1930)]

No duty to set-off
 A bank is under no duty or obligation to make an application or set-off against the deposit
accounts of a borrower. To apply the deposit to the payment of a loan is a privilege, a
right of set-off which the bank has the option [but not the obligation] to exercise. [BPI v.
CA and Eastern Plywood, G.R. No. 104612 (1994)]

Safety deposit boxes

The rent of safety deposit boxes is a special kind of deposit and cannot be characterized
as an ordinary contract of lease because the full and absolute possession and control of
the deposit box is not given to the renters. The prevailing rule is that the relation between
the bank renting out and the renter is that of bailor and bailee the bailment being for hire
and mutual benefit. [CA Agro- industrial Dev. Corp. v. CA, G.R. No. 90027 (1993)]

Material misrepresentation

If there is material misrepresentation, bank—

(1) May terminate any loan or other credit accommodation granted on the basis of said
statements; and

(2) Shall have the right to demand immediate repayment or liquidation of the obligation [Sec. 40,
GBL]

Limit on loans, credit accommodations and guarantees

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The relationship being contractual in nature, mandamus is therefore not an available remedy
since mandamus does not lie to enforce the performance of contractual obligations [Maclaring
Lucman vs. Alimatar Malawi, G.R. No. 159794 (2006)]

I.4. SINGLE BORROWER’S LIMIT

General rule: The total loans, credit accommodations and guarantees that may be extended by a bank to
any person, partnership, association, or corporation or other entity shall at no time exceed 20% of the net
worth of such bank. [Sec. 35.1, GBL]

Exceptions:

(1) The Monetary Board otherwise prescribes for reasons of national interest. [Sec. 35.1] Now, the single
borrower’s limit is 25% of the net worth of the lending bank.

(2) Wholesale lending activities of government banks to participating institutions for

relending to end-user borrowers: separate limit of 35% net worth. [BSP Circular No. 425
dated March 25, 2004]