Banking Reviewer

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BANKING LAWS AND JURISPRUDENCE

By: Efren L. Dizon and Efren Vincent M. Dizon

This Reviewer is made by:

MANILA, ANTONIO CEASAR

BERNARDO, JANSEN

INTIG, JOY ESTELA

DE JESUS, TRACY ANN.

FROM SECTION 2S

AY 2011-2012

Topic Page

Chapter 1- Banks and Business of Banking 2

Chapter 2 - Organization, Management, Administration Of Banks 5

Chapter 3 - Deposit Functions Of Banks 8

Chapter 4 - Investments, Loans and Other Bank Functions 12 Chapter 5 - Prohibited Transactions and Cessation Of Banking Business 24 Chapter 6 - Foreign Banks and Trust Operations 29 MIDTERM COVERAGE: Chapter 1 - 6

Chapter 7 - The Banko Sentral ng Pilipinas 36

Chapter 8- Currency, Monetary Stabilization and Functions of BSP 44 Chapter 9 - Unclaimed Balances and Trust Receipts 56

Chapter 10 - Deposit Insurance 61

Chapter 11 - Anti-Money Laundering 69

Chapter 12 – Special Purpose Vehicle 75

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AUTHORS: MANILA, ANTONIO CEASAR; BERNARDO, JANSEN; INTIG, JOY ESTELA; DE JESUS, TRACY ANN.

CHAPTER 1 – Banks and Business of Banking

• Declaration of the state with regards to banking – recognize vital role of the banks to provide environment conducive to development of national economy

o It also states that banks need high standards of integrity and performance • Banks – entities engaged in the lending of funds

obtained in the form of deposits (borrowing, lending, safe-keeping)

• Banks may engage in other activities allowed by the law other than lending

Nature of Banking Business

1. Debtor-Creditor Relationship

• It is a contract of loan and not deposit • Contract between bank and depositor is

governed by the provisions of the NCC on simple loan (Consolidated Bank and Trust Corp vs. CA)

2. Fiduciary duty

• Fiduciary relationship – bank’s obligation to observe high standard of integrity and performance (Phil. Banking Corp. vs. CA) 3. Not a trust agreement

• It is not a trust agreement and failure to pay a loan is not a breach of trust

• It is not a trust agreement because banks do not accept deposits to enrich depositors but to earn for themselves

4. Indispensable Institution

• Has a vital role in economic life • Significance of banking institution to

commercial transactions (Metropolitan Bank & Trust Co. vs. Cabilzo)

5. Impressed with public interest

• Has public interest because people depend on the honesty and efficiency of banks • Stability of banks largely depends on the

confidence of the people in the honesty and efficiency of banks.

6. Degree of diligence

• Diligence higher than that of a good father. It must be extraordinary diligence

• In Simex International vs. CA, the bank is under obligation to treat the accounts of its

depositors with meticulous care and always have in mind the fiduciary nature of banks

• Not enough that he exerted reasonable diligence to ascertain the safety of his clients

• Such diligence is only required in its fiduciary relationship with its depositors and not to other transactions such as sale of foreign exchange demand draft

• Sec 2 of GBL prescribes the statutory diligence required from banks – “high standards of integrity and performance” in serving its depositors.

• Diligence required of banks is more than that of a good father (PBCom vs. CA) • Diligence extends to financial institutions

(e.g. GSIS)

7. Treatment of accounts with meticulous care • Must treat every account with utmost

fidelity regardless of amount

• There is no law mandating banks to call up their clients whenever a significant amount shall be withdrawn from their account

8. Duty to keep records

9. Banks are not gratuitous bailees 10. Banks not expected to be infallible

• However, they must bear the loss for not discovering mistakes if there are established procedures not followed 11. Dealing with registered lands

• General Rule: mortgagee can rely on title and does not need to investigate further • Exception: mortgagee cannot close his

eyes to facts which should put a reasonable man on his guard, and yet claim that he is in good faith

• With banking institutions, mere reliance on the title is not enough as they need to investigate also

• Doctrine of the “mortgagee in good faith” – all persons dealing with property covered by the Torrens Certificates of Title are not required to go beyond what appears on the face of the title. (Cavite Development Bank vs. Spouses Lim)

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• The business o a bank is one affected with public interest, for which reason ghe bank should guard against loss due to negligence or bad faith (Sps. Omengan vs. PNB)

• Where the mortgagee does not directly deal with the registered owner of real property, the law requires higher degree of prudence be exercised by the mortgagee (Abad vs. Guimba)

12. Banks may exclude persons in their premises 13. Charging interest for loans

• It is considered the very core of the banking’s very existence

Liability for Acts of Officers and Employees

• A bank is liable for the wrongful acts of its officers done in the interest of the bank or dealings as bank representatives but not for acts outside the scope of their authority.

1. Negligence of Manager – employer is liable to the acts of the manager

2. Negligence of officer – general rule: tortious acts of officers within their scope of employment shall make banks liable

3. Negligence of tellers – tellers must exercise high degree of diligence

• Teller should not give passbook to wrong person as a person in possession of passbook is presumed the owner

• Appropriation of deposited money by the teller is not estafa but considered as theft as the client only had material possession of it. Such deposit money are considered owned by the bank

4. Right to recover from employees 5. Liability for damages

• Actual, exemplary, moral

• Actual and compensatory – the interest due shall itself earn interest from the time it is judicially demanded

• 12% - legal interest when judgment becomes final and executory

• 6% - interest for obligations not constituting a loan or forbearance of money

• Moral damages

• Gen. Rule – a corporation is not entitled to moral damages

• Exception – when its good reputation is besmirched by breach of fiduciary duty. • In culpa contractual – recoverable if

there is fraud or bad faith

• Depositor may recover even if bank’s negligence not attended by bad faith if he suffered mental anguish, serious anxiety, etc.

6. Respondeat superior of employees • Command responsibility

• A bank is bound by the negligence of its employees

Classification of Banks (CUT-RICO-NQU)

1. Universal Banks – large commercial banks that can do both commercial and investment banking

• They have the power of both commercial bank and investment house

• Have the power to invest in non-allied enterprises

2. Commercial banks – general powers incident of corporation and can perform commercial banking

• Does not have the power to invest in non-allied enterprises

3. Rural banks – banks that promote rural development

• They can extend loan or advances to primarily meet the normal credit needs of farmers, fishermen and their families • Can also deposit in private banks more

than the amount prescribed by Single Borrower’s Limit in case there are no government banks

• Rural Banks Act (RA 7353)

4. Thrift banks – encourages the industry, frugality and accumulation of savings of the public

• To make it within easy reach to the people the credit facilities at reasonable cost • Includes: (1) savings and mortgage bank,

(2) stock savings and loan associations and (3) private development banks

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5. Cooperative banks – organized by cooperatives to provide financial and credit services to cooperatives

• Cooperative Code (RA 6938)

• Membership of a cooperative bank shall include ONLY cooperative and federations of cooperatives

6. Islamic Banks – promote socio-economic development in autonomous region by performing banking and investment function based on Islamic concept of banking

• Islamic Bank – RA 6848

• Subject to the principles and rulings of Islamic Shari’a

7. Others banks:

• Philippine Veterans Bank – created to provide government depository to veterans for appreciation of grateful nation (RA 3518)

• Land bank of the Philippines – finance distribution of estate to resale to small landholders (RA 3844)

• Development Bank of Philippines – provide credit facilities for development in agriculture, commerce and industry

• DBP was previously named as Rehabilitation Finance Corporation (RFC)

8. Non-stock savings and loan associations – non-stock, non-profit corporation engage in accumulation of savings of its members and loans to meet its members’ needs

• Confines exclusive membership and cannot transact business with the general public

9. Quasi-banks – engaged in borrowing of funds through issuance of deposit substitute for purpose of relending or purchasing receivables and other obligations

10. Offshore Banks – deals with transaction with foreign currencies in receiving funds from external sources and utilization of such

• Governed by PD 1034

Authority to Engage in Banking and Quasi-Banking Functions

• No person or entity shall engage in baking operations without authority from Bangko Sentral • Universal or commercials banks may engage in

quasi-banking functions • Under Corporation Code:

o No articles of incorporation or amendment of banks shall be given unless accompanied by recommendation of appropriate government agency (MB) • The determination whether the person or entity is

performing banking or quasi-banking functions without authority of BSP shall be determined by MB

o MB may examine the books and records to achieve this purpose

• The department head and examiners can administer oaths and compel presentation of books, documents or records

• BSP can examine a bank or an enterprise that is wholly or majority-owned by the bank

o This can only be done when BSP is examining bank

• SEC shall not register articles of incorporation of bank unless it is accompanied by authority of MB • SEC shall not register by-laws of bank unless

accompanied by authority of BSP Service of summons upon banks

o May be made on the president, managing partner, general manager, corporate secretary, treasurer, in-house counsel (domestic)

o Upon resident agent or BSP (foreign bank) • As long as institute loans out money to its

customers and collect the interest and charges a commission to lender and banker, it is a bank • Investment company engages primarily in the

investing or trading of securities and is not a bank Bank name

• Only universal and commercial banks may represent itself to the public as such in connection with its business name

• Thirft banks can be allowed to have a business name of its own provided that “A thrift bank, savings bank or private development bank” shall be added

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CHAPTER 2 – Organization, Management,

Administration of Banks Organization of Banks

• MB can authorize the organization of a bank based on the following conditions:

1. Entity is a stock corporation (par value stocks only)

2. Funds are obtained from the public which shall mean twenty persons or more

3. Minimum capital requirement prescribed by MB shall be satisfied

• MB shall take into consideration the capabilities of the entity in terms of their financial resources, technical expertise and integrity

• Bank licensing process shall incorporate assessment of:

1. Banks’ ownership structure 2. Director management 3. Operating plan 4. Internal controls

5. Projected financial condition • Capital requirements:

Type of Bank Amount (M)

Universal 4,950

Commercial 2,400

Thrift banks

1. Head office in Manila 325

2. Otherwise 52

Rural Banks

1. Within Manila 26

2. Cebu/Davao 13

3. 1st-3rd class city and 1st class municipality

6.5 4. 4th-6th class city and 2-4th class

municipality

3.9 5. 5th-6th class municipality 2.6

• At least 25% of total authorized capital stock shall be subscribed by subscribers of proposed bank • 25% of such subscription shall be paid-up. It shall

not be less than the minimum capital requirement • Incorporators/subscribers and proposed directors

and officers must be (2) persons of integrity and (1) good credit standing

• Such persons must (1) not be convicted of crime involving moral turpitude and (2) not officers of

government agency or department charged with granting loans to banks

• Bank is organized 5-15 people (incorporators) • Cooperatives may organized a rural bank upon

consultation with the rural banks in the area • Bank and its branches shall be treated as one unit • Universal and commercial banks may open

branches within or outside the Philippines upon prior approval of BSP

• Other banks shall be governed by their pertinent laws

Stockholdings

1. Treasury Stocks

• GBL provides that NO bank shall:

i. Purchase or acquire shares of its own capital stock

ii. accept own shares as security for loan

1. Except if it approved by MB and will be returned in 6 months

• Reason: if banks were allowed to have a lien in their own stocks for indebtedness of stockholders, prohibition against granting loans or discounts upon security would become ineffective

2. Foreign stockholdings:

• Foreign individuals and non-banks can own 40% of voting stock of domestic bank.(aggregate foreign voting stocks) • A Filipino individual and domestic

non-bank may each own up to 40% of the voting stock (no aggregate ceiling)

• Citizenship of the corporation shall follow the citizenship of the controlling stockholders (>50%)

• The percentage of foreign-owned voting stocks in a bank shall be determined by the citizenship of individual stockholders • At least 60% of voting stock in any

commercial bank shall be owned by Filipino citizens

• In thrift banks, it shall be at least 40% • Rural banks, 100% Filipinos

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• In determining nationality of banks, control test is applied

• Family groups or related interest must be fully disclosed in all transactions of the individual

Board of Directors

• According to Corporation Code, there shall be at least five and maximum of 15 board of directors of bank

• Two of such shall be independent directors. Independent director – person other than officer or employee of bank

• All must be of legal age and majority of them are residents of the Philippines

• Non-Filipino citizens may become members of board of directors of bank up to the extent of allowed foreign participation

• Directors of merged or consolidated banks shall not exceed 21

• Election: President, Treasurer (director or not), Secretary (resident citizen). Not allowed position: President/Secretary, President/Treasurer

• Meetings may be conducted through modern technologies

• A foreigner may be a member of the Board of directors of a rural bank at the time of their assumption of office

• To protect funds of depositors and creditors, MB shall regulate payment of directors under certain circumstances:

1. Comptrollership

2. Business in unsafe or unsound manner 3. Bank is found to be in an unsatisfactory

financial condition Fit and Proper Rule

• Powers of MB against directors:

a. Review qualifications and DQs of directors

b. After due notice, may disqualify, suspend or remove director

c. Fit and proper rule shall be determine by - integrity, experience, education, training, competence of the director

• Disqualifications of directors:

a. Convicted of final judgment involving dishonesty or breach of trust

b. Persons convicted of final judgment with a maximum imprisonment term of more than 6 years

c. Convicts of banking laws

d. Persons judicially declared insolvent e. Culpable of bank’s closure

f. Administratively liable for violation of banking laws with penalty of removal from office

g. Found unfit for position

• There can be also temporary disqualifications and shall exist until DQ is gone

• Under CC (Corporation Code) disqualification is only with (1) imprisonment more than 6 years or (2) violation of code committed within 5 years • NCBA also provides DQ for members of MB that

is connected with bank under supervision or examination of BSP

• Public officials cannot also be an officer of any private bank unless position is incidental to office • Rural Banks Act – public official may be director

(exception)

• PDIC – conviction of any criminal offenses involving breach of trust

Banking Days and Hours

• At least 6 hours a day on working days (Mon-Fri except holidays)

• May open in Saturdays, Sundays and holidays for 3 hours (to report to BSP)

• For purposes of deposits and withdrawals, bank can extend beyond or early of 8AM and 8PM • If it is for other purposes, they can exceed 6 hours

minimum but not extend beyond or early of 8AM and 8PM

• Banks in airports or major fish ports can open 24hours

• Changes in banking days and hours can be made once every 30 days except during emergencies ATMs

• Classes: 1.) Offsite 2.) Mobile

• Banks may establish off-site ATMS provided that there is report on BSP and adequate security

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measures. They are installed only in centers of activity

• Mobile ATMS are allowed to visit places with large crowds of people provided it has adequate security

Independent Auditor

• MB may require bank to engage services of independent auditor from list of CPA acceptable to MB

Financial Statements

• Every bank, quasi-bank or trust entity shall submit to the BSP its financial statements

• Such statements must show the actual financial condition of its institution, including its operations • Must publish such in an understandable

knowledge once every quarter in a newspaper of general circulation

• Consolidated financial statement – combined statement of balance sheet and income expenses of two or more corporate entity

• Subsidiary – corporation where more 50% of its voting stock is owned by a bank

• Affiliate – linked directly/indirectly to the bank by 1.) 10% ownership or control 2.) interlocking directorship 3.) common stockholders owning 10% of each intermediary 4.) management contract 5.) permanent proxy or voting trust of 10%

Publication of Capital Stocks

• Bank, quasi-bank or trust entity shall not publish the amount of its subscribed capital stock without indicating the amount of its capital actually paid-up

Settlement of Disputes

• BSP shall be consulted by (1) government agencies in actions initiated or brought before them by banks and (2) disputes between any of them which they are directors, officers, or stockholders

Strike and Lockouts

• Any unsettled strike or lockouts involving banks after 7 days shall be reported by BSP to DOLE who will assume jurisdiction

• Banks, through their president, shall inform BSP of the cause of the strike and the operations affected

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CHAPTER 3 – Deposit Functions of Banks I. Kinds of Deposits

1. Demand deposits

• All those liabilities of BSP and of other banks which are denominated in Philippine currency and are subject to payment in legal tender upon demand by presentation of checks

• Only universal and commercial banks may accept or create demand deposits without prior authority from BSP

• Other types of bank require such authority. This considered as the current account in the bank 1.a. Temporary over drawings and DAUD

• Temporary overdrawings are not allowed except normal bank charges and other fees incidental to handling such accounts

• Violations of temporary overdrawings will cause (1/10 of 1%) fine per day computed on the basis of the amount of overdrawn but not to exceed P30,000.00 per day

• Drawings against uncollected deposits (DAUD) – prohibited. Exception: made against uncollected deposits representing manager’s, cashier’s, treasury warrants, postal money order and on us check

1.b. Current accounts of officers

• All officers, employees of bank in cash departments and other employees who have direct responsibility in handling deposit transactions are not allowed to maintain demand deposits or current accounts

1.c. Checks

• A written order addressed to a bank or person carrying banking business, by a party having money in their hands, requesting them to pay on presentment, to a person named therein or to bearer or to order, a named sum of money (Moran vs. CA)

1.d. Duty of bank to honor checks

• When bank sees that depositor’s account has sufficient amount, then it shall honor such

• If there is sufficient amount but bank dishonored, then bank is liable. Otherwise if there is no sufficient amount

• Banks must ensure that the check is only paid to its designated payee

• Drawer must remember every time he issues a check and a bank must know the former’s signature

• A bank is under no obligation to make partial payment on the check only upon the amount in the drawer’s funds

• The cannot also compensate the lack of money in the deposit account to the savings account

• Cross-check must be: (1) may not be encashed but only deposited (2) check negotiated only once – to one who has an account with a bank and (3) serves as warning to holder (State Investment House vs. IAC)

• Cashier’s check – bank’s own check and is treated as PN with the bank as maker

• - deemed as cash (New Pacific Timber & Supply Co. Inc. Cs. Señeris)

1.d. Set off Rule

• A bank can set off or compensate by debiting a personal account of depositor for an amount erroneously credits to the person’s proprietorship account

1.e. Relationship of Payee or Holder and the Bank

• Principal and agent – relationship between payee or holder of commercial paper and the bank to which it is sent for collection (PCIB vs. CA)

2. Savings Deposits

• Banks may be authorized by the BSP to solicit and accept deposits outside their bank premises 2.a. Individual and Joint Accounts

• If the joint account is “and”, both signatures of co-depositors are required before withdrawals • If “and/or” either their signature is sufficient

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2.b. Withdrawals

• There must always be a presentation of passbook and accomplishing necessary withdrawal slips before withdrawal except if authorized by BSP 3. Negotiable Order of Withdrawal Accounts

• NOW accounts are interest bearing deposit accounts that combine the payable on demand feature of checks and investment feature of savings account

• Universal and Commercial banks may offer NOW accounts but other banks need prior approval of MB

4. Time Deposits

• Time deposits – one the payment of which cannot be legally required within such specified number of days

• Special time deposits from the Agrarian Reform Fund Commission with lower interest shall be exempt from legal reserve requirements

• Certificated of Time Deposits can either be negotiable or non-negotiable. Only Universal or commercial banks can issue negotiable CTDs without prior approval of BSP

5. Deposit Substitute (Quasi-Banking Function) Essential Elements of quasi-banking are:

1. Borrowing funds for the borrower’s account 2. Twenty or more lenders at any one time

3. Methods of borrowing are issuance, endorsement or acceptance of debt instruments

4. Purpose is for relending and purchasing receivables

• Borrowing – all forms of obtaining or raising funds

• For the borrower’s own account – assumption of liability in one’s own capacity

• Relending – refer to the extension of loans by an institution with antecedent borrowing transactions 6. Foreign Currency Deposits

• Any person, natural or juridical may deposit with such any bank in good standing designated by BSP,

foreign currencies which are acceptable as part of international reserve, except those which are required by BSP to be surrendered

• Such banks can accept deposits and accept foreign currencies in trust

1. Numbered accounts for recording and servicing of deposits are allowed

• The depository bank shall

1. Maintain at all times a 100% foreign currency cover for their liabilities

2. 15% of such must be in the form of foreign currency deposit with BSP

3. The balance shall be in form of foreign currency loans/securities which are short-term maturities and readily marketable 4. Such loans can be extended to domestic

enterprises to cover the 100% foreign currency cover

• Depository banks under the expanded foreign currency deposit system shall be exempt from the 15% requirement of deposit with BSP

• There is no restriction on withdrawals by depositor of his deposit of the same abroad except does arising from contract of depositor and bank 7. Anonymous and Numbered accounts

• Such accounts are not allowed. Numbered accounts is only allowed in foreign currency deposits

• However, banks/non-banks should ensure that the client is identified in an official document

II. Administration of Deposits 1. Specimen signature, ID photos

• All banking institutions are required to set a minimum of 3 specimen signature from their depositors every 5 years or sooner

• Banks may also require submission of ID photos • First time depositors require the presentation of at

least 2 valid phot-bearing Ids

• Students who are beneficiaries of OFW are also required to present 2 Ids

• Submission is one-time basis only 2. Minors and Corporations as Depositors

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• Minors can have savings and time deposit accounts without assistance of parents

1. Must be at least 7 yrs old 2. Able to read and write 3. Sufficient discretion 4. Not otherwise DQed by law • Parents can still deposit money to minor

• For deposits of minors in thrift banks, guardian may make notice that payment (deposits, interest, dividends) be made to him and not to the minor • Corporations may open bank accounts as follows:

(1) Incorporation stage and (2) Post incorporation stage

3. Time of payment of interest in time deposits

• Interest on time deposit may be paid upon maturity, withdrawal or advance provided that the interest paid in advance shall not exceed interest for one year

4. Treatment of matured time deposits

• Time deposits not withdrawn or renewed on its due date shall be treated as a savings deposit and shall earn interest until actual withdrawal with rates of savings deposit

• Deposit substitute not withdrawn shall have a maturity rate applicable to a deposit substitute 5. Clearing Cut-off Time

• General rule: all deposits and withdrawals during regular banking hours shall be credited/debited to accounts on date of receipt or payment

• If there is BSP clearing arrangement, not earlier than 2 hours before BSP clearing time in head offices and 3.5 hours in branches

• If there is no BSP clearing arrangement 2 hours before local clearing time

6. Booking Cash Deposits

• Cash deposits received after clearing cut-off time shall be book as deposits on day of receipt

7. Booking Non-cash Deposits

• “on us” checks, manager’s/cashier’s checks, demand drafts received after clearing cut-off time

may, at the option of the bank, be booked on the day of receipt. Other non-cash deposits are treated as contingent accounts on the day of receipt and shall be booked as deposits the following day

8. Booking Deposits after regular banking hours

• Deposits, whether cash or not, received after close of regular banking hours shall be treated as contingent accounts and booked the following day 9. Average Daily Balance

• Banks may impose and collect service charge or maintenance fee on savings and current accounts that fall below minimum monthly average daily balance (ADB)

• must be properly disclosed in the terms of deposit • For dormant accounts: fall below 2 consecutive

months

III. Survivorship Agreement

• There is survivorship agreement when joint owners of a deposit agree that either of them could withdraw any part or whole of account during lifetime of both and the balance upon death of either belongs to the survivor

• It is an aleatory contract

• Survivorship agreement is per se not contrary to law but may be violative

• Agreement can be a mere cloak to hide in inofficious donation to transfer property in fraud IV. Nature of Bank Deposits

1. Deposits are considered simple loans and not preferred credits

2. Bank deposits are in the nature of irregular deposits as they are loans who earn interest (BPI vs. CA)

3. Relationship between depositor and Savings and Loan Association is that of creditor and debtor 4. Contract between bank and its depositors are

governed by NCC

5. Bank ultimately acquires ownership of deposits but has obligation to pay back equal amount 6. Banks can set-off or compensate

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V. Duties of Banks

• Meticulous care with deposits of clients due to fiduciary relationship

• Banks must give payment to the proper party, thus collecting bank has obligation to ascertain that the drawer truly intended that the depositor is the payee

• In case of death of depositor and the bank knew of it, there shall be no further withdrawal

• Administrators or heirs can withdraw up to 20k without certification of CIR

VI. Secrecy of Bank Deposits

• Purpose is to (1) give encouragement to the people to deposit their money in banking institution and (2) discourage private hoarding of depositors so that could be used in economic development • All deposits of whatever nature with bas including

investment bonds are considered absolutely confidential and may not be examined, inquired or looked into even by government officials

• RA 8367 prohibits inquire or disclosure of deposits

• Exception: (1) written permission of depositor, (2) impeachment, (3) order of court in case of bribery or dereliction or (4) subject matter of litigation • It shall also apply to foreign currency deposits

with the only exception of written permission • In Islamic banks that only exceptions are: (1)

inspection of bank auditor, (2) written permission by depositor (3) subject matter of litigation

VII. Exceptions to Secrecy of Deposits • They are already stated above

• Accounts can be garnished to insure satisfaction of judgment as there is no real inquiry and some disclosure are merely incidental

• Congress not intended for debtors to escape • General exemption against garnishment shall not

apply to foreign transients

• Foreign currency deposits of a foreigner who was convicted of crime of rape may be garnished to satisfy judgment

• Under RA 1405 and Anti-Money Laundering Act, the secrecy of deposits do not apply

• BSP can also inquire in deposits for periodic and special examinations

• Ombudsman has the In-Camera Inspection power to look into deposits provided that there is a pending case is court and 1.) the account must be properly identified 2.) inspection limited to the subject matter

• CIR can also look into deposits to determine gross estate of a decedent or he has applied for compromise tax liability

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CHAPTER 4 – Investments, Loans and Other Bank Functions

I. Universal Operation of Universal banks Powers of Universal bank

1. Commercial bank 2. Investment house

3. Invest in non-allied enterprises Equity Investments of Universal bank

• Allied enterprises are those which enhance or complement banking

• If it is a financial allied enterprise, then it involves money matters. Otherwise it shall be non-financial • Total investments in equities of allied and non-allied enterprises shall not exceed 50% of the net worth of the bank

• Equity investment in any one enterprise, whether allied or non, shall not exceed 25%

• Net worth – total of the unimpaired paid in capital including paid-in surplus, retained earnings and undivided profit

Equity investments of Universal bank in Financial Allied enterprise

• Universal bank can own 100% of the equity in a thrift, rural bank or financial allied enterprise • Publicly-listed universal or commercial bank may

own 100% of voting stock of another universal or commercial bank

• If not publicly-list then only 49% own • Following are financial allied enterprises:

1. Leasing companies 2. Banks

3. Investment houses 4. Financing companies 5. Credit card companies 6. Financial institutions

7. Companies in stock brokerage and foreign exchange dealership

8. Insurance companies

9. Holding company provided that the equities of the entity is confined under universal bank BSP regulation

Equity investments of universal bank in non-financial allied enterprise

• Universal bank may own up to 100% of equity in non-financial allied

• Examples are:

1. Warehousing companies 2. Storage

3. Safe deposit box

4. Companies engaged in management of mutual funds and not funds itself

5. Computer services

6. Home building and development 7. Service bureaus

8. PCHC

• Rural and cooperative banks can invest in non-financial allied enterprises such as:

1. Warehousing

2. Fertilize and agricultural chemical 3. Farm equipments

4. Trucking and transportation 5. Marketing agricultural products 6. Leasing

Equity investment of Universal Bank in Non-allied enterprise

• Equity investment in a single non-allied enterprise shall not exceed 35% in total equity or voting stock

Investments in non-allied enterprises

• Universal bank may invest in equity of enterprise of eligibles:

1. Enterprises engaged in agriculture, mining, quarrying, manufacturing, public utilities 2. Industrial parks

3. Commercial project with government privatization program

• Equity investment in Quasi-banks – universal bank can only invest up to 40% in equity of quasi-banks II. Operations of Commercial Banks

Powers of Commercial banks

1. General powers incident to corporations

2. All power necessary to carry business of commercial banking such as:

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a. Accepting draft and issuing letters of credit

b. Discounting

c. Creating demand deposits d. Buy and selling Forex Issuance of Letters of Credit

• Letter of credit – financial device developed by merchants as convenient mode of dealing with sales of goods

• The buyer will apply for a letter of credit in the issuing bank

• The seller will then send the goods to the carrier and he will make a draft, called bill of exchange • Seller will present the draft and the necessary

documents, such as bill of lading to issuing bank to receive the payment

• While the goods are in transit, it shall be owned by issuing bank

• When the goods arrived at the port of the buyer, the buyer will pay the corresponding payment and also gain the documents

• Since the buyer gain the documents, he can now acquire the delivered goods

• Independence principle – bank determines compliance with letter of credit only by examining shipping documents presented and need not examine the goods

• There are three contracts: 1. buyer-seller 2. buyer-bank 3. seller-bank

• There can be other parties such as notifying bank (inform seller), confirming bank (lend credence to letter of credit), paying bank and negotiating bank (discounter)

Equity investments on commercial bank

• Commercial bank may invest only in equities of allied enterprises

• Total investment in equities of allied enterprises shall not exceed 35%

• Equity investment in one enterprise shall not exceed 25%

Equity investment of commercial bank on financial allied enterprises

• Can own up to 100% in equity of thrift and rural bank

• However cannot own 100% of equity of financial allied enterprise other than above banks

Equity investment in commercial bank on non-financial allied enterprises

• Can own 100% of said enterprises III. Risk-Based Capital

Minimum Ratio

• MB shall prescribe minimum ratio

• It will be based on the net worth and risk assets of a banks well as its compositions

• It may alter compliance with ratio for a max period of 1 year

• Ratio shall be uniformly applied to banks of same category

Effect of Non-compliance

• If a bank does not comply then the MB can: 1. Limit distribution of net profits and be

used to increase capital accounts until minimum requirement is met

2. Restrict acquisition of major assets and new investments except with purchase of readily marketable evidence of indebtedness of RP BSP

• In case of merger, rehabilitation, MB may temporarily relieve such bank with compliance with capital ratio

IV. Limit on loans, credit accommodation and guarantees Single Borrowers Limit

• Total amount of loans, credits accommodation and guarantees extended to any person, partnership or corporation shall not exceed 20% of net worth of bank

• In Circular 425 of 2004 of BSP, the SBL was increased to 25%

(14)

1. MB may otherwise prescribe for reasons of national interest

2. Deposit of rural banks with GOC financial institutions such as LB, DBP and PNB • Basis for determining SBL is the total credit

commitment of bank to borrower

• Loans - to all accounts under loan portfolio

• Credit accommodations - to credit and market risk exposure of banks arising from accommodation other than the loan

• Total credit commitment - include loans, credit accommodation, deferred letters of credit less margin deposits and guarantees

• Total credit commitment can be increased by 10% provided additional liabilities are secured by trust receipts, shipping documents or readily marketable goods

• Readily marketable goods – articles of commerce, agriculture or industry as constant dealings in ready market and price is easily ascertainable and disposable

• Parent corporation’s total credit commitment shall also include its subsidiaries’ if it guarantees, accommodate or subsidiary is merely a department of it

• Wholesale lending of government banks shall not exceed 35% of net worth to participating financial institutions

• PFI – institutions for relending to end-user borrowers

• The end-user borrower shall be subject to the 25% SBL

• In municipalities where there are no government banks, deposits of rural and coop banks in private banks shall not be subject to SBL

• Deposit in private depository bank used by thrift, rural and coop banks, with authority to accept demand deposits, after being cleared, shall be exempted from SBL

• Bank guarantee – irrevocable commitment of a bank binding to pay a sum of money in event of non-performance of third party

• Credit Risk Transfer – arrangement that allows the bank to transfer the credit risk associated with its loan or other credit accommodation to a third party • Control of majority interest or controlling interest – parent owns, directly or indirectly through its

subsidiaries, more than half of voting power of enterprise

• Even if less than half of said voting power, it shall still have controlling interest if:

1. Agreement with investors 2. Govern financial and operations 3. Can appoint majority of directors 4. Cast majority vote on meetings

• Subsidiary – corporation where more than 50% of the voting stock is owned by a parent corporation • Bill of exchange drawn in good faith against

actually existing values – drawn by a seller on the purchase for the price of commodity sold

• Commercial paper owned by person negotiating the same – paper arising from business transaction • Exclusion from SBL:

1. Discount bills of exchange and discount commercial paper

2. Credit accommodation to finance importation of rice or corn up to 100% net worth of bank

Must be approved by NEDA

3. Loans and credit accommodation guaranteed by Industrial Guarantee and Loan Fund

4. Liabilities of commercial paper issuer for commercial paper held by UB as firm underwriter. Only 180 days and not exceed 5% from normal SBL

5. Loans and credit accommodations covered by international or regional institutions where Philippines is shareholder such as ADB

6. Loans and credit accommodations with valuation reserves provided that bank has no unbooked valuation reserves

7. Loans and credit accommodations as a result of underwriting agreement of debt securities not exceeding 30 days

Violations

• Monetary penalties – 1/10 of 1% of excess over the ceiling but not exceed 30k per day

• If bank resource is less than 50M, then only a max penalty of P500 shall be imposed

(15)

• In subsequent offense, a 1k fine shall be imposed on the directors who approved it

• There can also be suspension of bank’s branching privilege and rediscounting facility of BSP

Inclusion to Limit

• The following shall be included

1. Maker, acceptor of paper discounted and general indorser, drawer or guarantor 2. Individual who controls majority interest

in corporation

3. In case of corporation, all liabilities to such bank of all subsidiaries it has majority interest

4. Partnership, liabilities of members

• Also includes parent coporations with majority interest

Exclusion to limit

1. Loans and credit accommodations secured by BSP or RP. State is always solvent

2. Loans and credit accommodations guaranteed by government

3. Loans and credit accommodations covered by assigned of deposits by lending bank

4. Loans and credit accommodations under letters of credit covered by margin deposits

5. Loans and credit accommodations determined by MB as non-risk items

Assignment of Credits

• It is the agreement where the owner of credit, know as assignor, by legal cause, transfer his credit to another, known as assignee without need of consent of debtor

• Assignee acquires powers of assignor • There is no new obligation in assignment

• However, there must be a notice given to debtor so that he will know whom to pay

• Consent is not necessary in order that assignment may fully produce legal effects (Sison & Sison vs. Yap Tico and Avanceña)

Pacto commisorio

• Appropriating a thing given by pledge or mortgage

• It is not allowed. Encashment of deposit certificates is not pacto commissorio

• It is intended to protect the obligor against being overreached by creditor

V. Restriction on Bank Exposure to Directors, Officers, Stockholder and related interests (DOSRI)

• No DOSRI can directly or indirectly borrow from such bank or become a guarantor, indorser or surety for loan

• Exception is when there is a written approval of the majority of all directors of the bank excluding the DOSRI concerned

• Such approval is not required if it is under a fringe benefit plan approved by BSP

• Directors include those named in incorporations, elected or filled

• Officers shall include any person who performs function of management

• Stockholder – stockholder of record in the books of the bank

• Related interest includes souse or relative within 1st degree or by legal adoption. This includes partnership, co-ownership of DOSRIs

• Corporations where the above mentioned owns 20% of subscribed capital, then the prohibition shall apply

• Can also be less than 50% if the DOS sits as representative of the bank in the board of such corporation

Effect of violation

• The director or officer who violates may be declared vacant and subject to penal provisions of NCBA

Limit on loans

• MB can limit the valid loan given to DOSRI provided that it shall be based on their unencumbered deposits and book value of their paid in capital contribution

(16)

Exclusion to the Limit

• Loans and credit accommodations considered as non-risk

• Loans and credit accommodations to officers in

for of fringe benefits

• Limit on loans and credit accommodations shall not apply on those extended by coop bank to its coop shareholders

Applicability of DOSRI rules and regulation to government borrowing

• Circular 547 of 2006 provides that DOSRI rules shall also apply to loans and credit accommodations granted to RP, subdivisions, instrumentalities and GOCCs

• Exceptions would be:

1. Loans and credit accommodations that are non-risk and not subject to ceiling

2. Those made by BSP

3. LGU due to full autonomy in their propriety function

4. Director who acts as government representative

VI. Securities on Loans and credit accommodations Loans and credit accommodations against real estate

• Shall not exceed 75% of appraised value of respective real estate security plus 60% of the appraised value of the insure improvements Loans and credit accommodations on security of chattels and intangible properties

• Shall also not exceed 75% of the appraised value of the security

Join and Solidary agreement

• JSA is surety and not guarantee. It is an agreement where parties consent to be solidarily liable • As a contract of adhesion, JSA should be taken

contra proferentum against the party who may have caused any ambiguity therein.

Effect of Surety Agreement

• Agreement is onerous and construed against credtor

• Requires that creditor obtain consent of the surety before there can be material alteration to the loan • If surety director is not anymore party of the board

then he cannot be held liable

• Surety cannot extend to more than what is stipulated

• Joint and solidary signature of major stockholder or officer constitutes as an additional security for loans granted to corporations (Security Bank & Trust Company vs. Cuenca)

• Joint and solidary agreement – agreement where the contracting parties consent to be jointly and severally liable in a loan obligation

VII. Grant and purposes of loans and credit accommodations

Amount and purpose of loan

• Bank must grant loans and credit accommodations only in amounts and for period of time essential for effective completion

• Must be consistent with safe and sound banking practice

• Purpose of loan shall be stated in application • If bank finds that proceeds have been employed

without its approval, the bank shall have the right to terminate the loan and demand immediate repayment

Requirement for grant of loan

• Bank must first ascertain if debtor is capable of fulfilling his commitments to the bank. It must consists of:

1. Statement of assets and liabilities 2. Statement of income and expenditure 3. Prescribed by law and MB to evaluate

credit application

• Even in the absence of such provision in GBL, Art 1198 of the NCC allows the creditor to demand full payment when debtor is insolvent, fails to give guarantee, impaired guarantee, lost thing through fortuitous event, violate undertaking or attempts to abscond

(17)

• MB shall recognize peculiar characteristic of micro financing such as cash flow-based lending • Microfinancing loans – small loans granted to

basic sectors usually unsecured and given to small businesses

Reason for stringent rule in granting loans

• Banking corporation holds the money of the depositors. Due to the nature that it is affected public interest, the bank must ensure that the loan shall be repaid

Unsecured loans and other credit accommodation

• MB shall authorize regulations with respect to such

Other security requirements for bank credits

• MB may prescribe security requirements to which bank credits shall be subject and reduce or increase maximum ratio

Authority to prescribe terms and condition of loans and other credit accommodations

• MB may prescribe maturities as well as related conditions of varios bank loans and credit accommodations

• Any change in maximum maturity shall only apply to those made after such action

Amortization on loans and other credit accommodations • Amortization schedule of bank loans and other

credit accommodations shall be adopted based on nature of operation

• If loans and other credit accommodations has maturity of more than 5 years, must have periodic amortization payments and must be made annually • If borrowed funds are to be used for purposes which do not initially produce revenues for payment of regular amortization, bank may defer such time until revenues are sufficient. In no case shall initial amortization date be later than 5 years • In case of loans and other credit accommodations

to microfinance sectors, schedule shall consider cash flow of borrowers

Escalation Clause

• Parties to an agreement pertaining to loan of may agree upon an increase in the event that the applicable maximum interest is increased by MB • PROVIDED: such stipulation shall only be valid if

there is also a stipulation that the interest rate agreed upon shall be reduced in the even maximum interest rate is also reduced by MB • Escalation clause are not void per se

• It is void when it grants creditor unbridled right to adjust interest independently, completely depriving debtor of right to assent

• Such clause violate the mutuality of contracts • In escalation clause there should be:

1. Increase in interest if increased by law or MB (escalation clause)

2. Include provision for reduction of stipulated interest in the event maximum interest is also reduced by law or MB (de-escalation clause)

• Purpose of including de-escalation clause – prevent one-sidedness in favour of lender an repugnant to mutuality of contracts

• Absence of de-escalation clause will render escalation clause void

Effect of annulment of escalation clause

• In case the escalation clause is annulled, principal amount of loan is subject to original interest rate Exception

• If there is no de-escalation clause, the escalation clause is still valid if the creditor unilaterally and actually decreased the interest charges whenever the interest rate is reduced by law or MB (Llorin vs. CA)

Unilateral increase of rates

• Such violates the principle of mutuality of contracts in Art 1308 of NCC

• Any contract which appears to be heavily weighed in favour of any one party that will lead to unconscionable result is void

(18)

• Escalation clause are valid to maintain fiscal stability and retain the value of money on long-term contracts

• However, other party there must be right to assent to an important modification of contract

• Contract of adhesion – parties do not bargain on equal footing, the weaker party’s participation being reduced to a take or leave it

Iniquitous, unconscionable and exorbitant interests

• Though usury law is not inexistent, interest may be agreed upon by lender and borrower

• However, the same must be equitable reduced for being iniquitious, unconscionable and exorbitant • In Medel vs. CA, SC found that 66% interest rate

per anum is unconscionable

• In Cuaton vs. Salud, interest rate was 120% per annum interest rate is unconscionable and should be lowered to 12% per annum interest rate

• Dio vs. Virgilio, interest rate was 120% per annum also, reduction of interest must be made

• Bacolor vs. Banco Filipino, a 24% interest rate per annum is not unconscionable or excessive

Effect of void interest rate

• If interest rate is void, it is as if no express contract thereon and court may reduce

Prepayment of loans and other credit accommodations • A borrower may at any time prior to agreed

maturity date, prepay in whole or in part the unpaid balance subject to reasonable terms

Legal compensation

• Under Art. 1278, compensation can take place where the parties are creditors and debtors of each other

• A person who secures a loan of money acquires ownership and is bond to pay the creditor an equal amount

• Deposits in bank can be set-off against obligation of depositor

• Subsidiary has an independent and separate juridical personality from parent company and any

claim against the subsidiary is not a claim against the parent

Development assistance incentives

• BSP shall provide incentives to banks, without government guarantee, which extend loans to financial educational institutions, cooperatives, hospitals

Banks cannot extend peso loans to non-resident • Reason for this:

1. To curb undue speculation in foreign exchange market

2. Further reinforce memorandum that peso deposits should be funded inward foreign exchange remittances

• OFWs are residents and can avail peso loans Provisions for losses and write-offs

• Bad debts - all debts due to any bank on which interest is past due and unpaid

Extraordinary inflation or deflation

• Under Art 1250 of NCC, in case of extraordinary inflation or deflation of currency stipulated, value of currency at time of establishment of contract shall be the basis of payment

• For extraordinary inflation or deflation to affect obligation, the following must be proven:

1. There must first be official declaration from BSP

2. Obligation is contractual

3. Parties expressly agreed to considered effects of extraordinary inflation or deflation

• Extraordinary Inflation exist when there is an unusual decrease in the purchasing power of the currency and such decrease could not be reasonably foreseen or was manifest beyond the contemplation of the parties at the time of the obligation

(19)

• Attorney’s fees are not integral part of cost of borrow but arise when collecting upon the Notes becomes necessary

VIII. Truth in Lending Policy

• Protect citizen from lack of awareness of trust cost of credit to the user by assuring full disclosure of such cost and prevent uninformed use of credit Disclosure

• The creditor shall furnish the debtor a clear statement in writing setting forth the following:

1. Cash price or delivered price to be acquired

2. Amount to be credited as DP 3. Difference between 1 and 2 4. Charges individually itemized 5. Total amount to be financed 6. Finance charge

7. Percentage that finance bears to the total amount to the financed

• Rationale: protect users of credit from lack of awareness of true cost

Definition

• Credit – any loan, mortgage, deed of trsust, advance, conditional sale contract, rental

• Finance charge – interest, fees, service charges, discounts and other charges incident to extension of credit

• Creditor – any person engaged in business of extending credit who requires finance charge Penalties

1. Civil – any creditor who fails to disclose shall be liable for P100 or amount equal to twice of finance charge required

a. Whichever is higher

b. Liability shall not exceed 2k

c. Must be brought within 1 year from date of occurrence

2. Criminal – fine not less than 1k or not more than 5k or imprisonment for not less than 6 mos nor more than 1 year or both

• Both actions can be instituted independently of each other

• But there can also be a joinder of cause

Effect of violation

• Violation shall not affect the validity or enforceability of any contract

• In Consolidated Bank vs. CA, SC said that lender cannot charge interests not stipulated in promissory note

• In UCP vs. Beluso, interest rate provisions are illegal due to violation of mutuality of contracts and also violate TILA

Exemption of government

• TILA shall not apply to Philippine Government Required disclosure on consumer loans not under open-end credit plan

• Any creditor extending consumer loan or transaction which neither consumer credit sale nor open-end consumer credit plan shall also need to disclose information

Exempted transactions

• Disclosure requirement on consumer credit transactions shall not apply to those extension of credits for business or commercial purpose or to government

IX. Foreclosure of real estate mortgage Procedure

• In the event of foreclosure of any mortgage, the mortgagor has the right to redeem the property within one year after sale of real estate

• Purchaser at auction sale shall have the right to enter upon and take possession of such after date of confirmation of auction sale

• In GBL, if purchased y banks, they are not required to set up bond before they can enter the property immediately during redemption period

(20)

• Writ of possession may also be issued after consolidation of ownership of property in name of buyer

• Buyer becomes absolute owner of property if not redeemed during the 1 year after registration of sale

• If the property extrajudicially foreclosed belong to a juridical persons, right to redeem property shall be counted until, not after, the registration of the certificate of foreclosure

• It shall be no more than 3 months after foreclosure whichever is earlier

• Accessory contract of real mortgage is used as security for fulfilment of principal obligation • A loan value is only 70 percent of the appraised

value so that a low bid price will be made and will be easier to redeem

• Real property may be mortgaged to aliens

• Redemption period is counted from date of registration of the certificate of sale with register of deeds

• An action for annulment of mortgage does not stop the running of the period of redemption

• Otherwise there shall be frivolous suits instigated to give mortgagor more time to redeem

• The amount redeemable is the amount under the mortgage deed or the outstanding obligation plus interest and expense in Sec 47 of GBL

• No personal notice in required in extrajudicial foreclosure of sale since it is action in rem

Demand before foreclosure essential

• There must first be demand before there can be foreclosure as where demand was not made, the loan shall not become due and demandable

Equity of redemption vs. Right of redemption

• Where foreclosure is judicially made, no right of redemption exist in case the mortgagee is not a PNB or bank

• In such a case, the mortgagor is given the right to extinguish the mortgage and retain ownership of property by paying debt within 90 days after judgment

Right of redemption may be extended by agreement

Estoppel

• Bank or any purchaser is deemed consented to extension of redemption if it had time to object but it did not

Redemption after prescriptive period

• Right to redeem becomes functus officio on the date of its expiry

• Redemption is by force of law, the buyer is bound to accept redemption

• However, there can be right to repurchase depending on the will of buyer

• The buyer is not bound to accept repurchase unlike in redemption

• The buyer shall also not be bound by the bid price as it now belongs to him

• An alien-owned bank cannot acquire ownership of residential lot by virtue of deed of transfer as settlement of debt

• Transfer of ownership, even for a limited period or in foreclosure, cannot be made to alien

Offer to repurchase not waiver to question sale

• If there was an offer to repurchase, it shall not be construed as waiver of right to question foreclosure sale

• Mortgagee has no right to recover the deficiency from the mortgagor of value of loan if foreclosure is invalid

Preferred status of banks not impaired in case borrower under rehabilitation

• In case of rehabilitation of corporation debtor, the right of a creditor bank is merely suspended Writ of possession

• After consolidation of title in buyer’s name due to failure of mortgage to redeem, the writ of possession becomes a matter of right and its issuance in a extra-judicial foreclosure is merely ministerial

• Injunction to prohibit issuance of writ of possession is utterly out of place

• Proceeding in petition for writ of possession is ex-parte and summary in nature

(21)

• However, mortgagor still have right of recourse to petition to set aside foreclosure sale and cancel writ of possession in same proceeding

X. Major investments

• MB shall establish criteria for reviewing major acquisitions or investments of bank

Ceiling on investments in certain assets

• Bank may acquire real estate as necessary for its conduct of business

• Total investment on such real estate shall not exceed 50% of capital accounts

• Equity investment of a bank in another corporation engaged in real estate shall be considered part of investment in real estate

• In determining compliance with the ceiling, the following shall apply

o Investment shall include real estate and equipment necessary for bank use such as bank premises and real property of bank under its name

o The cost of real estate leased by bank from corporation and amount of equity in lessor shall also be included

• In case of Tala vs. Banco Filipino, BF reached its maximum 50% capacity in real estate and Tala was created by major stockholders to buyer bak sites of BF and leases it back to them. However, BF defaulted and Tala wants the payment of rents • The court rules that Tala cannot be allowed to

collect rent as it clearly shows that the tried to circumvent the real estate investment limit in GBL Acquisition of real estate by way of satisfaction of claims

• Notwithstanding the limitations, bank may still acquire the following property:

1. Mortgage to it in good faith for security 2. Conveyed for satisfaction of debt 3. Purchase under judgement or mortgage • Any real property held in such circumstance must

be disposed within 5 years

• After said period, those properties shall now be included in the 50% limitation

XI. Other Banking Services

• A bank may also perform the following services: 1. Receive custody of funds, documents and

other valuable objects

2. Act as financial agent to buy and sell for their customers

3. Make collection for accounts of other 4. Act as managing agent of investment

management accounts

5. Rent out safety deposit boxes

• Bank shall perform 1-4 as a depositary or as an agent

• It shall be duly separated from bank’s own assets and liabilities

Safety deposit box

• It is considered as a special kind of deposit

• It cannot be an ordinary contract of lease because the absolute control and possession of safety deposit box is not given to renters

• The guard key remains with bank and renters key remain in customer

• Where the renter keys are duplicated, the bank is not liable to either renters in case of loss attributable to them

• The SC said that it can be considered as a bailor and bailee relationship

• Duties of the parties may be defined by them • The company renting safe-deposit boxed cannot

exempt itself from liability due to fault of its own agents

• In Sia vs. CA, a bank was held liable for not immediately informing the customer that his safety deposit box was flooded which caused damage to the items of the customer

XII. Electronic transactions

• BSP shall have full authority to regulate use of electronic devices in connection with bank operations

XIII. Outsourcing of information technology

• Bank may outsource information technology systems and processes except inherent banking functions

• Functions that are not outsourced: 1. Strategic planning for use of IT