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UNSAFE OR UNSOUND BANKING

SEC.56. Conducting Business in an Unsafe or Unsound Manner - In determining 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 conducting business in an unsafe or unsound manner for purposes of this
Section, the Monetary Board shall consider any of the following circumstances:
56.1 The act or omission has resulted or may result in material loss or damage, or abnormal risk or
danger to the safety, stability, liquidity or solvency of the institution;
56.2 The act or omission has resulted or may result in material loss or damage or abnormal risk to the
institution's depositors, creditors, investors, stockholders or to the Bangko Sentral or to the public in
general;
56.3 The act or omission has caused any undue injury, or has given any unwarranted benefits,
advantage or preference to the bank or any party in the discharge by the director or officer of his
duties and responsibilities through manifest partiality, evident bad faith or gross inexcusable
negligence; or
56.4 The act or omission involves entering into any contract or transaction manifestly and grossly
disadvantageous to the bank, quasi-bank or trust entity, whether or not the director or officer profited
or will profit thereby.
Whenever a bank, quasi-bank or trust entity persists in conducting its business in an unsafe or
unsound manner, the Monetary Board may, without prejudice to the administrative sanctions provided in
Section 37 of the New Central Bank Act, take action under Section 30 of the same Act and/or immediately
exclude the erring bank from clearing, the provisions of law to the contrary notwithstanding.

Rural Bank of Lucena vs Central Bank of the Philippines, G.R.No.L-19621, November 29, 1969
Lucena was incorporated under the Rural Banks' Act (Republic Act No. 720) with a paid-up capital
of P60,000.00 — later increased to P500,000.00 — and a capital assistance of P100,000.00 in preferred
stock from the Republic of the Philippines.
Rural Bank of San Pablo complained to the Central Bank that Lucena was operating a branch office
in San Pablo City without authority from the Monetary Board. The Governor of the
Central Bank reported the following: (1) that Lucena had been operating a branch office in San Pablo
without proper authority; (2) that it received savings accounts in spite of authority only to service current
accounts and sales of drafts; (3) cash deposits were received only by a mere helper; (4) that it had extended
loans up to the amount of P180,000.00 to 23 borrowers whose whereabouts could not be located and were
probably either ineligible as borrowers or fictitious persons. On a second progress report are the following:
(1) the President-Manager of the plaintiff Rural Bank has sole power to approve loans; (2) the credit
standing and integrity of the President and members of the Board of Directors of the plaintiff Rural Bank
were not considered when certificate of authority was issued; (3) the employees handling cash and cash
deposits were not bonded; (4) no punitive or disciplinary action has been taken against Rural Bank for
extending anomalous loans or credits to ineligible borrowers; (5) no adequate steps were taken to press
collection of loans to ineligible and/or non-existent borrowers; (6) irregularities and violations committed by
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plaintiff Rural Bank were not brought to the attention of the Monetary Board; (7) the Department of Loans
and Credit intervened in appointment and separation of bank personnel; (8) the Department of Loans and
Credit and Rural Banks Administration encouraged the illegal operation of the Rural Bank 'Extension
Office' in San Pablo City; (9) the Department of Loans and Credit and Rural Banks Administration has not
exerted any effort to stop misleading and erroneous advertisements of the plaintiff Rural Bank; and (10)
that: "a) the Management of the Rural Bank of Lucena is allegedly allergic to bank examination. In several
instances, Mr. Jose V. Perez, President Manager of said bank, had displayed hostility and even threatened
examiners presently assigned thereat. "b) Mr. Jose V. Perez, President-Manager of the Rural Bank of Lucena
allegedly has had highly questionable business transactions in connection with the infamous surplus
property and immigration scandals. "c) The Rural Bank of Lucena has flagrantly violated banking laws and
Central Bank rules and regulations as a result of irresponsible and anomalous banking operations. This is
especially true with regards to its lending operations and the handling of current accounts on which interest
and/or premium appears to have been paid. "d) The Rural Bank of Lucena is illegally transacting business
beyond its authorized territory of operation which is limited only to fifteen (15) towns in Quezon, Sariaya,
Candelaria, Dolores, Tayabas, Lucban, Sampaloc, Mauban, Padre Burgos, Agdangan, Atimonan, Gumaca,
Lopez, Cabuag, Tagkawayan and Pagbilao.
Ruling: The foregoing acts committed by the officers, directors and employees of the Rural Bank of Lucena,
Inc. being substantially prejudicial to the interest of the Government, depositors or creditors, it appearing
that the continuance in business of the said Rural Bank under such circumstances would involve probable
loss to its creditors or depositors; and it having been shown further that notwithstanding warnings and
directives of the Director, Department of Rural Banks, the aforesaid officers, directors and employees of the
Lucena Rural Bank, Inc. persisted in such unsafe and unsound banking practices which are in violation of
the laws, instructions, orders, rules and regulations promulgated by the Monetary Board.
The intention of the Central Bank was to provide for temporary measures to prevent the commission
of further irregularities in the business operations of Lucena; to provide for the placing of its management in
the hands of men of integrity and competence; to provide for authority for its examiners to oversee the
operations of Lucena, and finally, to serve a warning upon the latter that should it refuse to comply with the
directives contained in the questioned resolution, the Central Bank would then have no other recourse but to
do its duty under the law — to "take over" the management and operations of Lucena — for the protection of
the interest of the Government and of the stockholders.

DOSRI
SEC. 36. Restriction on Bank Exposure to Directors, Officers, Stockholders and Their Related Interests. - 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
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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.

RULE ON DOSRI ACCOUNTS (GBL); RULE BGisO*

- No DOSRI of any bank shall, directly or indirectly, for himself or as the representative or agents of others:
1. Borrow from such bank
2. Become a guarantor, indorser or surety for loans from such bank to others
3. Be an obligor of or incur any contractual liability to the bank

WHEN DOSRI ACCOUNTS ALLOWED UNDER GBL, REQUISITES WUE-AI*

1. Procedural requirement: Written approval of majority of all the directors of the bank (excluding the
director concerned. Hence, in determining quorum, the director concerned is excluded)
2. Arms-length rule: The account should be upon terms not less favorable to the bank than those offered
to others
3. Reportorial requirement: The approval shall be entered upon the records of the bank and a copy of
such entry shall be transmitted to the supervising and examining department of BSP
4. Aggregate ceilings: MB may regulate the amount of loans that may be extended, directly or
indirectly, by a bank to DOSRI, as well as investments of such bank in enterprises owned or
controlled by said DOSRI (Under the MORB, the aggregate ceiling is 15% of the total loan portfolio
of the bank or 100% of the combined capital accounts, whichever is lower)
5. Individual ceilings: The outstanding loans which a bank may extend to each DOSRI shall be limited
to an amount equivalent to their respective unencumbered deposits and book value of their paid-in
capital contribution in the bank
WHEN WRITTEN APPROVAL OF DIRECTORS NOT REQUIRED FOR DOSRI ACCOUNTS
- For loans granted to officers under a FRINGE BENEFIT plan approved by BSP
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LOANS TO WHICH THE CEILING IS NOT APPLICABLE NFC

1. Loans secured by assets considered as non-risk by MB
2. Loans in the form of fringe benefits
3. Loans extended by a coop bank to its cooperative shareholders

DOSRI RESTRICTIONS UNDER NCBA (WAIVER REQUIREMENT)

1. Borrower (including DOSRI) is required by lending bank to waive secrecy of his deposits of
whatever nature in all banks in PH (Including trust accounts – Estrada v Sandiganbayan)
2. The accounts are subject to examination but any info obtained from an examination of his deposits
shall be held strictly confidential and may be used by:
a. Examiners only in connection with their supervisory and examination responsibility or
b. BSP in an appropriate legal action it may initiate involving the deposit account

REQUISITES FOR NCBA WAIVER RULE TO APPLY TO DOSRI ACCOUNTS*

1. Borrower is a DOS of a bank (Not RI)
- -The DOS should himself be the borrower of loan
- If borrower is RI but not DOS himself, DOS is not required to waive secrecy of his bank deposits
- Reason: The function of the phrase “who together with his related interest” is only to determine
whether the loan exceeds the aggregate ceiling (15/100)
- Meaning of “stockholder”: Owns at least 2% of the subscribed capital stock of the bank
2. DOS contracts a loan or any form or financial accommodation
- “Loan or financial accommodation”: Refers to transactions which involve the grant, renewal or
extension or increase of any loan, discount, credit or advance in any form whatsoever
3. The loan is from:
a. His bank
b. A bank that is a subsidiary of a bank holding company of which both his bank and lending bank
are subsidiaries
o Illustration of 3(b): A Bank and B Bank are subsidiaries of C Holding Company. D is a
director of A Bank. If D borrows from B Bank, he should waive the secrecy of deposits
because A and B banks are subsidiaries of C Holding Company.
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
- “Controlling interest”: Ownership of more than 50% of the voting stock or subscribed CS of the bank

- “Same interest”: refers to any of the ff – NJFB

i. Same natural person
ii. ii. Same corporationoration, pp or entity
iii. Same family group – persons related to each other within the 3rd degree of C/A, including
any corporationoration majority or all of the equity of which is owned by such fam group
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iv. Same business group – group of persons whose stockholdings altogether constitute a majority
or control in one or more enterprises
o Illustration of 3(c): Controlling shares of A Bank and B Bank belong to the “same interest.” C
is a director of A Bank. If C borrows from B Bank, he should waive secrecy of his bank
deposits
4. The loan of DOS, singly or with that of his RI, is in excess of:
a. 5% of the capital and surplus of the lending bank; or
b. In the maximum amount permitted by law – SBL 20% of bank’s NW (Whichever is lower)
o “Maximum amount permitted by law”: Limit on loans that may be extended to DOS under
the GBL (This refers to SBL which is 20% of bank’s NW under the GBL, 25% under the
MORB, now 30% due to BSP Memo)

WHAT ARE RELATED INTERESTS (BSP CIRC 170)

1. Spouse, relative within the 1st degree of C/A, or relative by legal adoption, of a DOS of the bank
2. Partnership of which a DOS or his spouse or relative within the 1st degree of C/A, or relative by
legal adoption, is a general partner
3. Co-owner with the DOS or his spouse or relative within the 1st degree of C or A, or relative by legal
adoption, of the property or interest or right mortgaged, pledged or assigned to secure the loans or
other credit accommodations, except when the mortgage, pledge or assignment covers only said co-
owner’s undivided interest (In which case, not a related interest)
4. Corporation, association, or firm of which a DO of the bank, or his spouse is also a DO of such
corporation, association or firm
- XPN:
a. Where the securities of such corporation, association or firm are listed and traded in the big board
or commercial and industrial board of domestic stock exchanges and less than 50% of the voting
stock thereof is owned by any one person related to each other within the 3rd degree of C/A
b. Where DOS of lending bank sits as a representative of the bank in the BOD of such corporations
- PROVIDED: The bank representative shall not have any equity interest in the borrower
corporation except for the minimum shares required by law, IRR, or by the bylaws of the
corporation - PROVIDED, further: The borrowing corporation under a or b is not among those
mentioned in 5 and 6 (Otherwise, the borrowing entity is still RI)
5. Corporation, association or firm of which any or a group of DOS of the lending bank or their spouse
or relatives within the 1st degree of C/A, or relative by legal adoption, hold more than 20% of the
subscribed capital of such corporation, or of the equity of such association or firm
6. Corporation, association or firm wholly or majority-owned or controlled by any related entity or a
group of related entities mentioned in 2 4 5:
a. 2: Corporation, association or firm is wholly or majority-owned by pp of which a DOS of the
bank, or his spouse, 1st degree relative, adoptee, is a general partner
b. 4: Corporation, association or firm is wholly or majority-owned by a corporation, association or
firm of which a DO of the bank or his spouse is also a DO
c. 5: Corporation, association or firm is wholly or majority-owned by a corporation, association or
firm of which a DOS of lending bank or his spouse, 1st degree relative or adoptee holds more
than 20% of the subscribed capital or of the equity of such association or firm
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7. Corporation, association or firm which has an existing management contract or any similar
arrangement with the parent of the BSFI pursuant to Item “g” of Sec. 362 (Definition of terms)
- The term “control of majority interest” shall be synonymous to “controlling interest” and exists when
the parent owns directly or indirectly through subsidiaries more than one half of the voting power of
an enterprise unless, in exceptional circumstance, it can be clearly demonstrated that such ownership
does not constitute control. Control of majority interest may also exist even when the parent owns
one-half or less of the voting power of an enterprise when there is:
a. Power over more than one-half of the voting rights by virtue of an agreement with other
investors
b. Power to govern the financial and operating policies of the enterprise under a statute or an
agreement
c. Power to appoint or remove the majority members of the board of directors or equivalent
governing body
d. Power to cast the majority votes at meetings of the board of directors or equivalent governing
body
e. Any other arrangement similar to any of the above.
8. which are incorporated by any of the stockholders or directors or officers or related BSFIs.

Apolinario vs PP, G.R.No.242977, October 13, 2021

In two separate Informations, Apolinario, Winefredo T. Capilitan (Capilitan), Motohiko Hagisaka
(Hagisaka), and Elmer T. Magpantay (Magpantay), directors and officers of the Unitrust Development Bank
(Unitrust), were charged with violation of Section 36 of Republic Act No. 8791, in relation to Section 36 of
Republic Act No. 7653.
That on or about December 26, 2001, in Makati City, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, who were then officers of Unitrust Development Bank (UDB),
as Director/Corporate Secretary, Director Acting/President, Director/Executive Vice-President and Board
Member, respectively, conspiring together, confederating with, and mutually helping one another, did then
and there, willfully, unlawfully and feloniously obtained/granted/released a personal loan to their co-
accused Winefredo T. Capilitan, a Director/Corporate Secretary of UDB in the amount of one million pesos
(P1 million) Philippine Currency, thru UDB Manager's check No. 8278, the net proceeds of which
is P997,350.00, without the written approval of the majority of all the directors of UDB, excluding the
director concerned and the required approval was not entered upon the records of the UDB and a copy of
such entry was not reported/transmitted to the appropriate supervising and examining department of the
Bangko Sentral ng Pilipinas.
That on or about December 27, 2001, in Makati City, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, who were then officers of Unitrust Development Bank (UDB),
as Director/Corporate Secretary, Director/Acting President, Director/Executive Vice-President and Board
Member, respectively, conspiring together, confederating with, and mutually helping one another, did then
and there, willfully, unlawfully and feloniously, granted/released a loan amounting to thirteen million pesos
(P13 million) Philippine Currency, to G. Cosmos Philippines, Inc. as evidenced by Promissory Note No. CL-
3731 dated December 27, 2001, signed by accused Winefredo T. Capilitan as President of G. Cosmos
Philippines, Inc. and in his personal capacity, without the written approval of the majority of all the
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directors of UDB, excluding the director concerned and the required approval was not entered upon the
records of the UDB and a copy of such entry was not reported/transmitted to the appropriate supervising
and examining department of the Bangko Sentral ng Pilipinas.
Ruling: To sustain a conviction for violation of the DOSRI restriction, the prosecution must prove the
existence of the following elements beyond reasonable doubt: . . . (1) the offender is a director or officer of
any banking institution; (2) the offender, either directly or indirectly, for himself or as a representative or
agent of another, performs any of the following acts: (a) he borrows any of the deposits or funds of such
bank; or (b) he becomes a guarantor, indorser, or surety for loans from such bank to others: or (c) he
becomes in any manner an obligor for money borrowed from bank or loaned by it; and (3) the offender has
performed any of such acts without the written approval of the majority of the directors of the bank,
excluding the offender, as the director concerned.
It must be stressed that the responsibility of entering upon its records the required written approval
and of transmitting a copy of the entry to the Bangko Sentral ng Pilipinas is on the subject bank, which in
this case is Unitrust. Unitrust failed to report the same.

FIT AND PROPER RULE

SEC. 16. Fit and Proper Rule. - 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.
- MB may disqualify, suspend or remove any bank director or officer who commits or omits an act
which render him unfit for the position
- Purpose: To maintain quality of bank mgt and afford better protection to depositors and the public in
general
- Condition: MB must give due notice to BOD of the bank
- Factors to consider in determining whether individual is fit and proper to be a bank director or
officer:
1. Integrity; 2. Experience; 3. Education; 4. Training; 5. Competence
Busuego vs CA
Busuego, Banez and Lim are PAL Employees Savings and Loan Association Inc (PESALA)’s
directors and officers. During the 16th regular examination of the books and records of PESALA, several
anomalies and irregularities were uncovered to have been committed by the petitioners, which are: 1.
Questionable investment in a multi-million-peso real estate project (Pesalaville); 2. Conflict of interest in the
conduct of business; 3. Unwarranted declaration and payment of dividends; and 4. Commission of unsound
and unsafe business practices.
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Ruling: The Central Bank, through the Monetary Board, is empowered to conduct investigations and
examine the records of savings and loan associations. If any irregularity is discovered in the process, the
Monetary Board may impose appropriate sanctions, such as suspending the offender from holding office or
from being employed with the Central Bank, or placing the names of the offenders in a watchlist.
Neither were petitioners deprived of their lawful calling as they are free to look for another
employment so long as the agency or company involved is not subject to Central Bank control and
supervision. Petitioners can still practice their profession or engage in business as long as these are not
within the ambit of Monetary Board Resolution No. 805.

SINGLE BORROWER’S LIMIT

SEC.35 Limit on Loans, Credit Accommodations and Guarantees
35.1 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 percent (20%) 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.
35.2. 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.
35.3 The above prescribed ceilings shall include (a) the direct liability of the maker or acceptor of
paper discounted with or sold to such bank and the liability of a general endorser, drawer or guarantor who
obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank; (b)
in the case of an individual who owns or controls a majority interest in a corporation, partnership, association
or any other entity, the liabilities of said entities to such bank; (c) in the case of a corporation, all liabilities to
such bank of all subsidiaries in which such corporation owns or controls a majority interest; and (d) in the
case of a partnership, association or other entity, the liabilities of the members thereof to such bank.
35.4. Even if a parent corporation, partnership, association, entity or an individual who owns or
controls a majority interest in such entities has no liability to the bank, the Monetary Board may prescribe the
combination of the liabilities of subsidiary corporations or members of the partnership, association, entity or
such individual 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.
35.5. 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: (b) loans and other credit accommodations fully guaranteed by the government as to the
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payment of principal and interest; (c) loans and other credit accommodations covered by assignment of
deposits maintained in the lending bank and held in the Philippines; (d) loans, credit accommodations and
acceptances under letters of credit to the extent covered by margin deposits; and (e) other loans or credit
accommodations which the Monetary Board may from time to time, specify as non-risk items.
35.6. Loans and other credit accommodations, deposits maintained with, and usual guarantees by a
bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as herein
prescribed.
35.7. Certain types of contingent accounts of borrowers may be included among those subject to
these prescribed limits as may be determined by the Monetary Board.
- GR: Total amount of loans, credit accommodations and guarantees that may be extended by a bank
shall not exceed 20% of the bank’s NW (Increased to 25% under the MORB then now to 30%
effective until Dec 2021 – BSP Memorandum No. M-2021-026)
- XPN: MB prescribes otherwise for reasons of national interest
- Basis of determining limit: Total credit commitment of bank to borrower - MORB: Loans by a bank
to an entity for the purpose of project finance is subject to SBL Conditions:

1. Such project finance loans are for the purpose of undertaking initiatives that are in line with the
priority programs and projects of govt
2. Lending bank shall ensure that the standard prudential controls in project finance loans to
safeguard creditors’ interests are in place, which may include (Securities)
3. Pledge of a borrower’s shares, assignments of the borrower’s assets, assignment of all revenues
and cash waterfall accounts, and assignment of project documents

Begay vs. Office of the Special Investigation – Bangko Sentral ng Pilipinas, Rural Bank of San Luis,
G.R.No.237664, August 3, 2022
Begay, engaged in the real estate business in Benguet and Tarlac obtained a loan from Rural Bank of
San Luis, Pampanga under security of 2 mortgaged properties in Ambiong. He was able to secure other
loans through different individuals.
Special Investigation – Bangko Sentral ng Pilipinas: Begay failed to prove he was the sole owner of
the subject loans.
The loans in the names of Begay's alleged attorneys-in-fact, Magallano, Sy, Bernal, Miranda,
Salvado, Gumangan, Novero, and Bautista were distinct and separate from Begay's loans. The Bank further
claimed that the respective promissory notes of the borrowers showed that they obtained such loans in their
personal capacities; thus, there can be no violation of the rules on the Single Borrower's Limit. It also
claimed that some of the subject loans had already been paid, such as the loan of Salvado which had been
paid in full.
Banks are expected to exercise more care and prudence than private individuals in their dealings,
even those that involve registered lands, for their business is affected with public interest.
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PARAMETERS BEFORE BANK CAN BE CLOSED

SEC. 30. Proceedings in Receivership and Liquidation. - 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.

REQUIREMENTS IN THE FORMATION OF BANKS

SECTION 8. Organization. – 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.

SECTION 9. Issuance of Stocks. - 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.

SECTION 14. Certificate of Authority to Register. - The Securities and Exchange Commission shall no
register the articles of incorporation of any bank, or any amendment thereto, unless accompanied by a
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certificate of authority issued by the Monetary Board, under it 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;
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.

BSP Circular No. 1154

Section lO2 BASIC GUIDELINES IN ESTABLISHING BANKS A new banking organization must have
suitable/fit shareholders, including the ultimate beneficial owners (UBOs)t; adequate financial strength, a
legal structure in line with its operational structure, a board of directors (or its equivalent body in the case of
foreign bank branches) and senior management with sufficient expertise and integrity to operate the bank in a
safe and sound manner.