The Supreme Court sided with the Bangko Sentral ng Pilipinas (BSP), affirming its fiscal independence in determining net profits for dividend remittances to the government. This decision clarifies that BSP is not bound by the same rules as other government-owned or controlled corporations (GOCCs), emphasizing its unique role in maintaining economic stability and allowing it to establish reserves deemed necessary for prudent financial management. This ruling ensures BSP can effectively manage its finances and monetary policies without undue constraints, which supports a stable financial environment for businesses and citizens.

Central Bank Autonomy: Can the BSP Decide Its Own Profits?

At the heart of this case lies a dispute between the Bangko Sentral ng Pilipinas and the Commission on Audit (COA) regarding how BSP should compute its net profits for the purpose of remitting dividends to the National Government. The core legal question is whether BSP, as the central monetary authority, is bound by Republic Act No. 7656 (RA 7656), which applies to GOCCs, or whether it can follow its own charter, Republic Act No. 7653 (RA 7653), allowing it to deduct reserves before remitting dividends. The COA argued that Section 2(d) of RA 7656 impliedly repealed Section 43 of RA 7653, thus prohibiting BSP from deducting any reserves from its net earnings. This interpretation led to audit observation memoranda (AOMs) against BSP for alleged underpayment of dividends from 2003 to 2006.

The conflict arose from differing interpretations of how net profits should be calculated. RA 7656, a general law applicable to GOCCs, defines “net earnings” without allowing deductions for any reserves, stating:

SECTION. 2. Definition of Terms. – As used in this Act, the term: x x x x (d) “Net earnings” shall mean income derived from whatever source, whether exempt or subject to tax, net of deductions allowed under Section 29 of the National Internal Revenue Code, as amended, and income tax and other taxes paid thereon, but in no case shall any reserve for whatever purpose be allowed as a deduction from net earnings.

On the other hand, RA 7653, the BSP Charter, allows BSP to make allowances for bad and doubtful accounts:

SECTION 43. Computation of Profits and Losses. – Within the first thirty (30) days following the end of each year, the Bangko Sentral shall determine its net profits or losses. In the calculation of net profits, the Bangko Sentral shall make adequate allowance or establish adequate reserves for bad and doubtful accounts.

This discrepancy led to the COA asserting that BSP had underdeclared its dividend payments by deducting reserves for property insurance and rehabilitation of the Security Plant Complex.

The Supreme Court, however, emphasized the unique role and independence of BSP as the central monetary authority. It acknowledged that while Section 1 of RA 7653 refers to BSP as a government-owned corporation, the same section also grants BSP fiscal and administrative autonomy. Moreover, the legislative records of RA 7653 and the Constitution reveal a clear intention to create an independent central monetary authority insulated from political influence. Building on this principle, the Court stated, “The independence of the BSP necessarily entailed its exclusion from the ‘general category of government-owned and controlled corporations’ which are under the control of the Executive department.”

Further supporting the Court’s conclusion is Republic Act No. 10149 (RA 10149), or the GOCC Governance Act of 2011, which expressly excludes BSP from its coverage. Also of importance is Republic Act No. 11211 (RA 11211), which amended Section 43 of RA 7653. The amended Section 43 explicitly reiterates BSP’s power to maintain reserves, stating:

SEC. 43. Computation of Profits and Losses. – Within the first sixty (60) days following the end of each year, the Bangko Sentral shall determine its net profits or losses. Notwithstanding any provision of law to the contrary, the net profit of the Bangko Sentral shall be determined after allowing for expenses of operation, adequate allowances and provisions for bad and doubtful debts, depreciation in assets, and such allowances and provisions for contingencies or other purposes as the Monetary Board may determine in accordance with prudent financial management and effective central banking operations.

The Supreme Court addressed the issue of whether Section 2(d) of RA 7656 repealed Section 43 of RA 7653. The Court reiterated the well-established rule that repeals by implication are disfavored. The Court stated, “The two laws must be absolutely incompatible, and a clear finding thereof must surface, before the inference of implied repeal may be drawn.” In other words, for an implied repeal to exist, the provisions in the two acts on the same subject matter must be irreconcilably contradictory. Finding that BSP is outside the coverage of RA 7656, the Court concluded that Section 2(d) of RA 7656 did not repeal Section 43 of RA 7653. In essence, since RA 7656 applies only to GOCCs, and BSP is not a GOCC, RA 7656 cannot govern the computation of BSP’s net earnings.

The Court emphasized that the independence of BSP is crucial for its effective operation as the central monetary authority. To support this, the Court stated that Congress intended to grant the BSP a unique status. Referencing legislative deliberations, the Court underscored the legislative intent: the BSP “is owned by the government, but not quite government-owned or -controlled corporation as defined now by various law.” By excluding BSP from the general category of GOCCs, the legislature aimed to protect its operations from political interference and ensure its ability to pursue long-term financial stability.

Therefore, the Supreme Court concluded that the COA committed grave abuse of discretion in holding that COA Resolution No. 2011-007, which disallowed any reserve to be deducted from the BSP’s net earnings, had become final. The Court set aside the COA’s decision and resolution, affirming BSP’s authority to determine its net profits in accordance with its charter, RA 7653. The ruling underscores the importance of maintaining BSP’s autonomy and ensuring it has the necessary flexibility to manage its operations effectively. To further clarify, the court stated “the ruling in Resolution No. 2011-007 that ‘no reserve for whatever purpose shall be allowed to be deducted from BSP’s net earnings/income in the computation of dividends to be remitted to the National Government’ is declared VOID.”

FAQs

What was the key issue in this case?	The key issue was whether the Bangko Sentral ng Pilipinas (BSP) is required to comply with Republic Act No. 7656 (RA 7656) in computing its net profits for dividend declaration, or whether it can follow its own charter, Republic Act No. 7653 (RA 7653).
What did the Commission on Audit (COA) argue?	The COA argued that Section 2(d) of RA 7656 impliedly repealed Section 43 of RA 7653, meaning that BSP cannot deduct any reserves when calculating net earnings for dividend remittance.
What did the Supreme Court decide?	The Supreme Court ruled that BSP is not bound by RA 7656 because it is not a government-owned or controlled corporation (GOCC) as defined under that law. Thus, BSP can follow its own charter (RA 7653) in computing net profits.
Why is BSP considered different from other GOCCs?	The Supreme Court emphasized BSP’s unique role and independence as the central monetary authority. The Court highlighted that BSP is granted fiscal and administrative autonomy to ensure it can effectively manage its operations without political interference.
Did the Supreme Court address the issue of implied repeal?	Yes, the Court stated that implied repeals are disfavored, and there was no clear intent by the legislature to repeal Section 43 of RA 7653 with Section 2(d) of RA 7656. Therefore, no implied repeal occurred.
What is the impact of this decision on BSP’s dividend payments?	The decision allows BSP to determine its net profits in accordance with its charter, RA 7653. This means BSP can make adequate allowances for reserves, as deemed necessary for prudent financial management, before remitting dividends to the National Government.
Does this ruling affect other government-owned corporations?	No, this ruling is specific to the Bangko Sentral ng Pilipinas, given its unique functions and constitutional mandate as the central monetary authority. The case does not alter the applicability of RA 7656 to other government-owned or controlled corporations (GOCCs).
What does this mean for the Bangko Sentral ng Pilipinas?	This ruling gives BSP greater control over its financial management, ensuring it can maintain adequate reserves and respond effectively to economic challenges. It also reinforces its operational independence from the executive branch.

In conclusion, the Supreme Court’s decision in Bangko Sentral ng Pilipinas vs. Commission on Audit reinforces the central bank’s autonomy and its ability to make informed financial decisions. This ruling ensures that the BSP can effectively perform its critical functions in the Philippine economy, contributing to stability and growth, with the added security of its financial affairs managed independently. This aligns with legislative intent and broader public policy objectives, setting a clear path for the BSP’s future operations.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Bangko Sentral ng Pilipinas vs. The Commission on Audit, G.R. No. 210314, October 12, 2021