THIRTEENTH CONGRESS OF THE REPUBLIC 
) 
OF THE PHILIPPINES 
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First Regular Session 
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Introduced by Senator Franklin M. Drilon 
EXPLANATORY NOTE 
When applying for loans, it is not unusual for borrowers to reveal to 
banks a “second set” of financial books which are different from that presented 
to the Bureau of Internal Revenue to reflect a more favorable financial 
condition of the company or borrower to the bank. 
Section 40 of Republic Act No. 8791, otherwise known as the “General 
Banking Law of 2000”, provides that a bank may demand from its credit 
applicants “such information required by the Monetary Board to enable the 
bank to properly evaluate the credit application which includes the 
corresponding financial statements submitted for taxation purposes to the 
Bureau of Internal Revenue.” It can be observed, however, that the present 
wording of the law does not prevent tax evasion as it does not compel 
borrowers to submit the financial statements presented to the BIR when 
applying for loans. 
This bill proposes that all banks must base their loans on the audited 
financial statements reflecting the operations of the company or borrower, 
which have been presented to tax authorities. This bill intends to improve the 
collection of taxes by minimizing tax evasion as it proposes that the amount of 
loans granted bv banks must be based on the audited financial statements that 
have been certified by the Bureau of Internal Revenue as the same set 
submitted to them. 
With such proposal, borrowers will have no choice but to declare their 
true income when submitting financial statements to the BIR so that they can 
avail of bigger loan amounts from banks and financial institutions. 
By causing the declaration of true income on the part of taxpayers - 
borrowers, government can increase tax collection thus minimizing the 
pressure to impose new tax measures. 
Considering that every effort needs to be exerted in 
reviving 
the 
country’s ailing economy and financial system during this critical period, we 
appeal for the immediate passage of this bill. 
NKLIN M. DRILQN 


THIRTEENTH CONGRESS OF THE ) 
REPUBLIC OF THE PHILIPPINES 
) 
First Regular Session 
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S E N A T E  
Introduced bv: Senator FRANKLIN M. DRILON 
AN ACT REQUIRING AUDITED FINANCIAL STATEMENTS 
SUBMITTED TO TAX AUTHORITIES AS MINIMUM SECURITY 
REQUIREMENTS FOR BANK LOANS, AMENDING FOR THE PURPOSE 
SECTION 40 OF REPUBLIC ACT NO. 8791, OTHERWISE KNOWN AS 
THE "GENERAL BANKING LAW OF 2000" 
Be it enacted by the Senate and House of Representatives of the 
Philippines in Congress assembled. 
Section 1. Section 40 of Republic Act No. 8791 is hereby amended 
to read as follows : 
"SEC. 40. Requirement for Grant of Loans or Other Credit 
Accommodations. - Before granting a loan or other credit 
accommodation, a bank must ascertain that the debtor is 
capable of fulfilling his commitments to the bank. 
[ Toward this end, a ] A bank may demand from its 
credit applicants a statement of their assets and liabilities 
and of their income and expenditures and such information 
as may be prescribed by law or by rules and regulations of 
the Monetary Board to enable the bank to properly evaluate 
the credit application. FOR THIS PURPOSE, BANKS SHALL 
EXTEND 
LOANS 
BASED 
ON 
AUDITED 
FINANCIAL 
STATEMENTS PREPARED BY DULY CERTIFIED PUBLIC 
ACCOUNTANTS AND DULY CERTIFIED BY [ which includes 
the corresponding financial statements submitted for 
taxation purposes to ] the Bureau of Internal Revenue AS 
THE SAME SET SUBMITTED TO IT. ONLY UPON RECEIPT 
O F  SAID CERTIFICATION SHALL BANKS APPROVE SUCH 
LOAN APPLICATIONS. 
THE SAME SHALL BE REQUIRED 
FOR RENEWAL OF LOANS. 
Should such statements prove 
to be false or incorrect in any material detail, the bank may 
terminate any loan or other credit accommodation granted 
on the basis of said statements and shall have the right to 
demand immediate repayment or liquidation of the obligation. 
THE BANGKO SENTRAL NG PILIPINAS SHALL HAVE 
THE SUPERVISORY AND EXAMINATION AUTHORITY OVER 
THE BANKS TO ENSURE THAT THE AMOUNT OF LOAN 
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APPROVED IS BASED ON THE CAPACITY TO PAY OF THE 
BORROWING ENTITY AS ATTESTED BY THE INCOME TAX 
RETURNS AND SUPPORTING FINANCIAL STATEMENTS 
DULY PREPARED BY A CERTIFIED PUBLIC ACCOUNTANT 
AND CERTIFIED AS TRUE AND CORRECT BY THE BUREAU 
OF INTERNAL REVENUE. 
In formulating rules and regulations under this 
Section, the Monetary Board shall recognize the peculiar 
characteristics of micro financing, such as cash flow-based 
lending to the basic sectors that are not covered by 
traditional collateral.” 
Section 2. 
Repealing Clause - All laws, orders, rules and 
regulations, other issuances, or parts thereof, inconsistent with any 
provision of this Act, are hereby repealed or modified accordingly. 
Section 3. Effectivity. - This Act shall take effect after fifteen (15) 
days following its publication in the Official Gazette or in two (2) 
newspapers of general circulation. 
Approved, 
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