Guidelines implementing Section 56 of the General Banking Law of 2000

CIRCULAR NO. 341 Series of 2002

Pursuant to Monetary Board Resolution No. 1055 dated 25 July 2002, the following guidelines shall be observed in implementing Section 56 of the General Banking Law of 2000 or Republic Act No. 8791:

Section 1. Whether a particular activity may be considered as conducting business in an unsafe or unsound manner, all relevant facts must be considered. An analysis of the impact thereof on the banks/quasi-banks/trust entities’ operations and financial conditions must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position.

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, the Monetary Board, upon report of the head of the supervising or examining department based on findings in an examination or a complaint, shall consider any of the following circumstances:

a.  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;

b.  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;

c.  The act or omission has caused any undue injury, or has given 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

d.  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.

Attached for guidance is a list of activities which may be considered unsafe and unsound. ( ) The Monetary Board may consider any other acts/omissions as unsafe and unsound practices.

Section 2. The Monetary Board may, at its discretion and based on the seriousness and materiality of the acts or omissions, impose any or all of the following sanctions provided under Section 37 of Republic Act No. 7653 and Section 56 of Republic Act No. 8791, whenever a bank, quasi-bank or trust entity conducts business in an unsafe and unsound manner:

a.  Issue an order requiring the institution to cease and desist from conducting business in an unsafe and unsound manner and may further order that immediate action be taken to correct the conditions resulting from such unsafe or unsound practice;

b.  Fines in amounts as may be determined by the Monetary Board to be appropriate, but in no case to exceed Thirty Thousand pesos (P30,000.00) a day on a per transaction basis taking into consideration the attendant circumstances, such the gravity of the act or omission and the size of the bank, quasi-bank or trust entity, to be imposed on the bank, quasi-banks or trust entities, their directors and/or responsible officers;

c.  Suspension of interbank clearing privileges/immediate exclusion from clearing;

d.  Suspension of rediscounting privileges or access to Bangko Sentral credit facilities;

e.  Suspension of lending or foreign exchange operations or authority to accept new deposits or make new investments;

f.   Suspension of responsible directors and/or officers;

g.  Revocation of quasi-banking license; and/or

h.  Receivership and liquidation under Section 30 of RA 7653.

All other provisions of Sections 30 and 37 of R.A. 7653 whenever appropriate shall also be applicable on the conduct of business in an unsafe or unsound manner.

The imposition of the above sanctions is without prejudice to the filing of appropriate criminal charges against culpable persons as provided in Sections 34, 35 and 36 of R.A. 7653.

This Circular shall take effect immediately.

FOR THE MONETARY BOARD:

RAFAEL B. BUENAVENTURA Governor