Monetary penalty guidelines for banks/quasi-banks, their directors and/or officers for violations/offenses with sanctions falling under Section 37 of R.A.No. 7653

CIRCULAR NO. 496 Series of 2005

The Monetary Board, in its Resolution No. 1198 dated 8 September 2005, approved the monetary penalty guidelines for banks/quasi-banks, their directors and/or officers for violations/offenses with sanctions falling under Section 37 of R.A. No. 7653 (“The New Central Bank Act”). The schedule of penalty, categorized based on: (1) the nature of offenses such as minor, less serious, and/or serious, and (2) the assets size of the bank/quasi-bank, shall be as follows:

A.  For Serious Offense

Asset Size

Up to P200 million

Above P200 million but not exceeding  P500 million

Above P500 million but not exceeding P1 Billion

Above P1 Billion but not exceeding P10 Billion

Above P10 Billion but not exceeding P50 Billion

Above P50 Billion

Penalty Range

Minimum

P 500

P 1,000

P 3,000

P 10,000

P 18,000

P 25,000

Medium

750

1,500

5,000

12,500

20,000

27,500

Maximum

1,000

2,000

7,000

15,000

22,000

30,000

B. For Less  Serious Offense

Asset Size

Up to P200 million

Above P200 million but not exceeding  P500 million

Above P500 million but not exceeding P1 Billion

Above P1 Billion but not exceeding P10 Billion

Above P10 Billion but not exceeding P50 Billion

Above P50 Billion

Penalty Range

Minimum

P 300

P 600

P 1,000

P 3,000

P  7,000

P15,000

Medium

350

700

1,250

4,000

8,500

17,500

Maximum

400

800

1,500

5,000

10,000

20,000

C. For Minor Offense

Asset Size

Up to P200 million

Above P200 million but not exceeding  P500 million

Above P500 million but not exceeding P1 Billion

Above P1 Billion but not exceeding P10 Billion

Above P10 Billion but not exceeding P50 Billion

Above P50 Billion

Penalty Range

Minimum

P 150

P 300

P 600

P 1,000

P 3,000

P 6,000

Medium

200

400

700

1,500

4,000

8,000

Maximum

250

500

800

2,000

5,000

10,000

For purposes of this Circular, the following definition of terms shall mean:

1.   Serious Offense - This refers to unsafe or unsound banking practice.  An unsafe or unsound practice is one in which there has been some conduct, whether act or omission, which is contrary to accepted standards of prudent banking operation and may result to the exposure of the bank and its shareholders to abnormal risk or loss.

a)   In determining the acts or omissions included under the unsafe or unsound banking practice, an analysis of the impact thereof on the banks/quasi-banks/trust entities’ operations and financial condition must be undertaken, including evaluation of capital position, asset condition, management, earnings posture and liquidity position.  The following circumstances shall be considered:

b)   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;

c)   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;

d)   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

e)   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.

Certain acts or omissions as falling under this classification maybe determined based on the guidelines provided under Circular 341 dated 6 August 2002 .

2.   Less Serious Offense - These include major acts or omissions defined as bank/individual’s failure to comply with the requirements of banking laws, rules and regulations, provisions of MOR/Circulars/Memorandum as well as Monetary Board directives/instructions having material[i]1/ impact on Bank’s solvency, liquidity or profitability and/or those violations classified as major offenses under the Report of Examination, except those classified under unsafe or unsound banking practice.

3.   Minor Offense - These include acts or omissions which are procedural in nature, can be corrected immediately and do not have material impact on the solvency, liquidity and profitability of the Bank.  All other acts or omissions that cannot be classified under the major offenses/violations will be classified under this category.

4.   Minimum refers to the range of penalties to be imposed if the mitigating factor(s) outweigh the aggravating circumstances.

5.   Medium refers to the penalty to be imposed in the absence of any mitigating and aggravating circumstances or if the mitigating factor(s) offset the aggravating factor(s).

6.   Maximum refers to the penalty to be imposed if the aggravating circumstances outweigh the mitigating factor(s).

In determining the amount of penalty, a two-stage assessment shall be conducted as follows:

Step 1: Determine the nature of offense whether it is: (a) Serious; (b) Less Serious; or (c) Minor Offense ; and

Step 2:  Determine whether there are aggravating and/or mitigating factors (as listed and defined in Annex A).

Both the aggravating and mitigating factors shall be considered for initial penalty imposition and subsequent requests for reconsideration thereto.

The foregoing monetary penalties shall be without prejudice to the imposition of non-monetary sanctions, if and when deemed applicable by the Monetary Board.  Violations of banking laws and Bangko Sentral regulations with specific penal clause are not covered by this Circular.

This Circular shall take effect after fifteen (15) days following its publication on its Official Gazette or in a newspaper of general circulation.

1/   SFAS/IAS defines materiality as any information, which if omitted or misstated, could influence the economic decisions of users taken on the basis of the financial statements.  Per Financial Accounting Standard Board (FASB), it is defined as the magnitude of an omission or misstatement of accounting information xxx.

FOR THE MONETARY BOARD

NESTOR A. ESPENILLA JR. Officer-in-Charge