THIRD DIVISION
G.R. No. 218390, February 28, 2018
HONGKONG BANK INDEPENDENT LABOR UNION (HBILU), Petitioner, v. HONGKONG AND SHANGHAI BANKING CORPORATION LIMITED, Respondent.
D E C I S I O N
VELASCO JR., J.:
Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet housing, transportation, household and personal needs of their officers and employees. Financing plans and amendments thereto shall be with prior approval of the BSP. (emphasis added)
Article XI
Salary Loans
Section 1. Housing/house Improvement Loan. The BANK, or other financial institution when appropriate, shall extend housing loan to qualified employees with at least three (3) YEARS OF SERVICE, UP TO One Million Five Hundred Thousand Pesos (P1,500,000.00) payable in twenty-five (25) years or up to the retirement date of the employee, whichever comes first. Subject to BSP approval, an additional Five Hundred Thousand Pesos (P500,000.00) can be availed subject to the terms above with interest rate at the BLR less 3% but not less than six percent (6%) per annum.
Section 2. Personal Loans. The BANK, or the Retirement Trust Fund Inc. or other financial institutions, when appropriate, shall extend personal loan to qualified employees, with at least 1 year service, up to six months basic pay of the employees at six percent (6%) interest per annum, payable in three years.
Section 3. Car Loans. The BANK, or the Retirement Trust Fund Inc. or other financial institutions when appropriate, shall extend a car loan to qualified employees with at least 3 years service up to Five Hundred Fifty Thousand Pesos (PHP550,000.00) payable in seven (7) years. Interest rate shall be six percent (6%) per annum.
Section 4. Credit Ratio. The availment of any of the foregoing loans shall be subject to the BANK's credit ratio policy.
Article XI
Salary Loans
Section 1. Housing/house Improvement Loan. Based on the Financial Assistance Plan duly approved by Bangko Sentral ng Pilipinas (BSP), the BANK, or other financial institution when appropriate, shall extend housing loan to qualified employees with at least three (3) YEARS OF SERVICE UP TO One Million Five Hundred Thousand Pesos (P1,500,000.00) payable in twenty-five (25) years or up to the retirement date of the employee, whichever comes first, subject to employee's credit ratio. An additional Five hundred thousand Pesos (P500,000.00) can be availed subject to the terms above with interest rates at the BLR less 3% but not less than six percent (6%) per annum.
Section 2. Personal Loans. Based on the financial Assistance Plan duly approved by Bangko Sentral ng Pilipinas (BSP), the BANK, or other financial institutions when appropriate, shall extend personal loan to qualified employees, with at least 1 year service, up to six months basic pay of the employees at six percent (6%) interest per annum, payable in three (3) years, subject to employee's credit ratio.
Section 3. Car loans. Based on the Financial Assistance Plan duly approved by Bangko Sentral ng Pilipinas (BSP), the BANK, or other financial institutions when appropriate, shall extend a car loan to qualified employees with at least three years service, up to Five Hundred Fifty Thousand Pesos (PHP550,000.00) payable in seven (7) years. Interest rate shall be six percent (6%) per annum. (emphasis added)
Dear All
We wish to reiterate the following provisions included in the Financial Assistance Plan (FAP) as approved by Bangko Sentral ng Pilipinas (BSP). Note that the FAP is the official guideline and policy governing Staff Loans and Credit Cards.
>>>>CREDIT CHECKING
Below are the specific provisions included in the FAP regarding credit checking.
Housing Loan, Car Loan, Personal Loan & Computer/Club Membership/Medical Equipment Loan Repayment defaults on existing loans and adverse information considered in the evaluation of loan applications. Credit Card Repayment defaults on existing loans and adverse information considered in the evaluation of loan applications.
With the strict implementation of these provisions, adverse credit findings may result to disapproval of loan or credit card applications. These findings will include the following:
(1) Frequency of confirmed ADA failure on staff/commercial loans and credit cards (3 consecutive incidents within the past 6 months or 6 incidents within the past 12 months). Note that applications with pending ADA for investigation will only be processed upon confirmation of status (Confirmed or Reprieved); (2) Adverse findings on HSBC cards; or (3) Adverse findings from external credit checks.[7
The decisions and resolutions of the Hon. Panel of Voluntary Arbitrators and the Hon. Court of Appeals are tainted with grave abuse of discretion and it showed patent errors in the appreciation of facts which led to wrong conclusions of law; or stated otherwise;
The Hon. Panel of Voluntary Arbitrators and Court of Appeals committed serious, reversible and gross error in law in ruling that the Bank's Financial Assistance Plan as not in violation of Article XI of the Parties' CBA revision on Salary Loans (Article XII of the new and existing CBA)12
The union members cannot then feign ignorance of the external credit checking requirement in staff loan applications, according to HSBC. Consequently, petitioner's bare denial of any knowledge about it cannot be given any credence. Considering too that the Plan reiterating the requirement has been approved by the BSP in 2003, HBILU slept on its rights when it questioned its strict imposition almost a decade after its issuance.
CREDIT CHECKING Repayment defaults on existing loans and adverse information on outside loans will be considered in the evaluation of loan applications.
Section 3. The State shall afford full protection to labor, local and overseas, organized and unorganized, and promote full employment and equality of employment opportunities for all.
It shall guarantee the rights of all workers to self-organization, collective bargaining and negotiations, and peaceful concerted activities, including the right to strike in accordance with law. They shall be entitled to security of tenure, humane conditions of work, and a living wage. They shall also participate in policy and decision-making processes affecting their rights and benefits as may be provided by law.
(a) To promote and emphasize the primacy of free collective bargaining and negotiations, including voluntary arbitration, mediation and conciliation, as modes of settling labor or industrial disputes;Corollary thereto, Article 255 of the same Code provides:
x x x x
(d) To promote the enlightenment of workers concerning their rights and obligations as union members and as employees;
x x x x
(g) To ensure the participation of workers in decision and policy-making processes affecting their rights, duties and welfare. (Emphasis ours)
ART. 255. EXCLUSIVE BARGAINING REPRESENTATION AND WORKERS PARTICIPATION IN POLICY AND DECISION-MAKING.
x x x x
Any provision of law to the contrary notwithstanding, workers shall have the right, subject to such rules and regulations as the Secretary of Labor and Employment may promulgate, to participate in policy and decision-making process of the establishment where they are employed insofar as said processes will directly affect their rights, benefits and welfare. For this purpose, workers and employers may form labor-management councils: Provided, That the representatives of the workers in such labor management councils shall be elected by at least the majority of all employees in said establishment. (Emphasis and underscoring ours)
ARTICLE 253. Duty to bargain collectively when there exists a collective bargaining agreement. – When there is a collective bargaining agreement, the duty to bargain collectively shall also mean that neither party shall terminate nor modify such agreement during its lifetime. x x x It shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties. (emphasis added)
CREDIT CHECKING Repayment defaults on existing loans and adverse information on outside loans will be considered m the evaluation of loan applications.24
With the strict implementation of these provisions, adverse credit findings may result to disapproval of loan or credit card applications. These findings will include the following:In fact, regrettably, HSBC's only documentary basis for proving that the credit checking requirement and the manner of its enforcement have been set in place much earlier is the use of the term "reiterate" in its April 20, 2012 e-mail. Thus, we quote:
(1) Frequency of confirmed ADA failure on staff/commercial loans and credit cards (3 consecutive incidents within the past 6 months or 6 incidents within the past 12 months). Note that applications with pending ADA for investigation will only be processed upon confirmation of status (Confirmed or Reprieved); (2) Adverse findings on HSBC cards; or (3) Adverse findings from external credit checks.[26
Dear All
We wish to reiterate the following provisions included in the Financial Assistance Plan (FAP) as approved by Bangko Sentral ng Pilipinas (BSP).
x x x
20. Accordingly, the above email dated 20 April 2012 clearly indicates that the dissemination therein of the FAP and its provisions is merely a reiteration, and not a first publication as the Union now conveniently claims.27 x x x (emphasis supplied)
§ X304.1 General guidelines. Consistent with safe and sound banking practices, a bank shall grant loans or other credit accommodations only in amounts and for the periods of time essential for the effective completion of the operation to be financed. Before granting loans or other credit accommodations, a bank must ascertain that the borrower, co-maker, endorser, surety, and/or guarantor, if applicable, is/are financially capable of fulfilling his/their commitments to the bank. For this purpose, a bank shall obtain adequate information on his/their credit standing and financial capacities x x x.
Subsection X338.3 Other conditions/limitations
The investment by a bank in equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment of the bank in real estate and equipment for purposes of Section 51 of R.A. No. 8791.
The investment by a bank in equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank.
All loans or other credit accommodations to bank officers and employees, EXCEPT those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or other credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 36 of R.A. No. 8791 and Sections X326 to X336 but not to the individual ceilings where such loans or other credit accommodations are obtained under the bank's fringe benefits program. (emphasis ours)
Subsection X338.3 Other conditions/limitations
The investment by a bank in equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment of the bank in real estate and equipment for purposes of Section 51 of R.A. No. 8791.
The investment by a bank in equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank.
All loans or other credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or other credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 36 of R.A. No. 8791 and Sections X326 to X336 but not to the individual ceilings where Such loans or other credit accommodations are obtained under the bank's fringe benefits program.
Subsection X338.1 Mechanics. The mechanics of such financing plan shall have the following minimum features:
Participation shall be limited to full-time and permanent officers and employees of the bank;
x x x x
The bank shall adopt measures to protect itself from losses such as by incorporating in the plan or contract provisions requiring co-makers or co-signor, chattel, or real estate mortgages, fire insurance, mortgage redemption insurance, assignment of money value of leave credits, pension or retirement benefits. (Emphasis ours)
The aggregate outstanding loans and other credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio.34
As a general proposition, an arbitrator is confined to the interpretation and application of the collective bargaining agreement. He does not sit to dispense his own brand of industrial justice: his award is legitimate only in so far as it draws its essence from the CBA, i.e., when there is a rational nexus between the award and the CBA under consideration. It is said that an arbitral award does not draw its essence from the CBA; hence, there is an unauthorized amendment or alteration thereof, if:
- It is so unfounded in reason and fact;
- It is so unconnected with the working and purpose of the agreement;
- It is without factual support in view of its language, its context, and any other indicia of the parties' intention;
- It ignores or abandons the plain language of the contract;
- It is mistakenly based on a crucial assumption which concededly is a nonfact;
- It is unlawful, arbitrary or capricious; and
- It is contrary to public policy.
x x x x
If the terms of a CBA are clear and [leave] no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall prevail. However, if, in a CBA, the parties stipulate that the hirees must be presumed of employment qualification standards but fail to state such qualification standards in said CBA, the VA may resort to evidence extrinsic of the CBA to determine the full agreement intended by the parties. When a CBA may be expected to speak on a matter, but does not, its sentence imports ambiguity on that subject. The VA is not merely to rely on the cold and cryptic words on the face of the CBA but is mandated to discover the intention of the parties. Recognizing the inability of the parties to anticipate or address all future problems, gaps may be left to be filled in by reference to the practices of the industry, and the step which is equally a part of the CBA although not expressed in it. In order to ascertain the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered The VA may also consider and rely upon negotiating and contractual history of the parties, evidence of past practices interpreting ambiguous provisions. The VA has to examine such practices to determine the scope of their agreement, as where the provision of the CBA has been loosely formulated. Moreover, the CBA must be construed liberally rather than narrowly and technically and the Court must place a practical and realistic construction upon it.36 (emphasis ours)
Endnotes:
1 Penned by Associate Justice Maria Elisa Sempio Diy and concurred in by Associate Justices Ramon M. Bato, Jr. and Rodil V. Zalameda.
2 Rollo, p. 283.
3 On July 27, 2006, February 11, 2008, and on July 4, 2011.
4 Rollo, p. 128.
5 SECTION X338. Financial Assistance to Officers and Employees. Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet the housing, transportation, household and personal needs of their officers and employees. Financing plans and amendments thereto, shall be with prior approval of the Bangko Sentral.
Subsection X338.1 Mechanics. The mechanics of such financing plan shall have the following minimum features:
Participation shall be limited to full-time and permanent officers and employees of the bank; Financial assistance shall only be for the following purposes:
(1) The acquisition of a residential house and lot, or the construction, renovation or repair of a residential house on a lot owned and to be occupied by the officer or employee;
(2) The acquisition of vehicles, household equipment and appliances for the personal use of the officer or employee or his immediate family; or
(3) To meet expenses for the medical, maternity, education, emergency and other personal needs of the officer or employee or his immediate family;
Financial assistance for purposes mentioned in Items b(1) and b(2) of this Section shall be granted in the form of a loan, advance or other credit accommodation, installment sale, lease with option to purchase or lease-purchase arrangement where the lessee is obliged to purchase the real estate or equipment;
The amount and maturity of financial assistance for each purpose shall be determined by the bank in consonance with the normal requirements thereof: Provided, That the maximum amount shall be stated as percentage or multiple of the total monthly compensation of the officer or employee and shall be within the paying capacity of the borrowing officer or employee.
Total monthly compensation shall include the basic salary and all fixed and regular monthly allowances of the officer or employee. Payments for sickness benefits and other special emoluments which are not fixed or regular in nature, or the commutation into cash of unused leave credits shall not be included in the computation of total monthly compensation;
The amortization payment shall include amounts necessary to cover mortgage redemption insurance and fire insurance premiums, taxes, special assessments, and other related fees and charges;
Availment of the financing plan to construct or acquire a residential house and lot shall be allowed only once during the officer's or employee's tenure with the bank, except where the right over the real estate previously acquired or constructed under the financing plan is absolutely transferred or assigned to another officer or employee of the bank or to a third party: Provided, That the bank must be fully paid or reimbursed for the outstanding availment on the financing plan before the officer/employee is allowed to re-avail himself of the same financing plan.
An officer or employee (or his spouse) who already owns a residential house and lot shall not be qualified to avail himself of financial assistance for purposes of acquiring a residential house and/or lot.
These prohibitions notwithstanding, financial assistance for the repair or renovation of a residential house may be allowed subject to such limitation as may be prescribed by the bank pursuant to Item d of this Section;
Availment of the financing plan for the acquisition of a specific type of equipment or appliance shall be allowed not oftener than once every three (3) years: Provided, That re-availment shall be allowed only after previous obligations in connection with the acquisition of the same type of equipment or appliances have been fully liquidated; and
The bank shall adopt measures to protect itself from losses such as by incorporating in the plan or contract provisions requiring co-makers or co-signor, chattel, or real estate mortgages, fire insurance, mortgage redemption insurance, assignment of money value of leave credits, pension or retirement benefits.
Subsection 1338.2 Funding by Foreign Banks. In the case of local branches of foreign banks, financial assistance for their officers and employees may be funded, through any of the following means:
Through a local affiliate by special arrangement with the head office abroad in any of the following forms:
(1) Inward remittance from the head office of the affiliate;
(2) Assignment to the affiliate of equivalent amounts of profits otherwise remittable abroad under existing regulations; or
(3) Direct loans by the foreign bank to the affiliate; or
Through the local branch itself by:
(1) Segregation or transfer of undivided profits normally remitted to the head office abroad equivalent to the loans to officers and employees which shall be lodged under "Other Liabilities-Head Office Accounts". This account shall at all times have a balance equivalent to the outstanding loans to officers/employees financed under this scheme; or
(2) Inward remittance; or
Through the local branch from local sources without earmarking an equivalent amount of undivided profits: Provided, that the aggregate ceilings on such loans as provided under existing regulations shall apply.
Loans under Items b(1) and b(2) of this Section shall be treated in the branch books as loans granted by its head office. The documentation and collection of such loans shall be handled by the branch for the account of the head office.
Loans financed under Items a and b shall be subject to the reporting requirements of Section X335 but not to the ceilings provided under Sections X330 and X331. The same shall be excluded from the computation of the capital to risk assets ratio.
Subsection X338.3 Other conditions/limitations
The investment by a bank in equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment of the bank in real estate and equipment for purposes of Section 51 of R.A. No. 8791.
The investment by a bank in equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank.
All loans or other credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or other credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 36 of R.A. No. 8791 and Sections X326 to X336 but not to the individual ceilings where such loans or other credit accommodations are obtained under the bank's fringe benefits program.
The aggregate outstanding loans and other credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio. See < http://www.bsp.gov.ph/regulations/regulations.asp?type=1&id=165 > (last visited December 12, 2017).
6 All loans or credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans of other credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 36 of R.A. No. 8791 and Sections X326 and X336 but not to the individual ceilings where such loans or other credit accommodations are obtained under the bank's fringe benefits program.
The aggregate outstanding loans and other credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio.
7Rollo, p. 285.
8 Id.
9 Via a Notice to Arbitrate filed by HBILU on November 26, 2012.
10 Rollo, p. 95.
11 Id. at 168.
12 Id. at 90.
13 Id. at 92.
14 Id. at 101.
15 Id. at 93.
16 Id. at 98.
17 Id. at 102.
18 Id. at 98.
19 Citing Halagueña v. Philippine Airlines, Inc., G.R. No. 172013, October 2, 2009, 602 SCRA 297.
20 See Morales v. Harbour Centre Port Terminal, Inc., G.R. No. 174208, January 25, 2012, 664 SCRA 110, 119-120.
21Goya, Inc. v. Goya, Inc. Employees Union-FFW, G.R. No. 170054, January 21, 2013, 689 SCRA 1, 15-16.
22 G.R. No. 164060, June 15, 2007, 524 SCRA 709.
23 Id.
24 Rollo, pp. 475-476.
25 Id. at 475-488.
26 Id. at 285.
27 HSBC Comment, p. 8.
28 Rollo, p. 640.
29 Id. at 642.
30 Id. at 642-643.
31 Id. at 404.
32 A cardinal rule in statutory construction is that when the law is clear and free from any doubt or ambiguity, there is no room for construction or interpretation. There is only room for application. Twin Ace Holdings Corporation v. Rufina and Company, G.R. No. 160191, June 8, 2006, 490 SCRA 368, 376.
33 SECTION 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 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 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. 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. In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (76a)
34 Supra note 5.
35 G.R. No. 85985, August 13, 1993, 225 SCRA 301, 309.
36 G.R. No. 162957, March 6, 2006, 484 SCRA 187, 200-203.
LEONEN, J.:
Article 264. [253] Duty to bargain collectively when there exists a collective bargaining agreement. — When there is a collective bargaining agreement, the duty to bargain collectively shall also mean that neither party shall terminate nor modify such agreement during its lifetime. However, either party can serve a written notice to terminate or modify the agreement at least sixty (60) days prior to its expiration date. It shall be the duty of both parties to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement during the 60-day period and/or until a new agreement is reached by the parties.
Until a new CBA is executed by and between the parties, they are duty-bound to keep the status quo and to continue in full force and effect the terms and conditions of the existing agreement. The law does not provide for any exception nor qualification on which economic provisions of the existing agreement are to retain its force and effect. Therefore, it must be understood as encompassing all the terms and conditions in the said agreement.
The CBA during its lifetime binds all the parties. The provisions of the CBA must be respected since its terms and conditions "constitute the law between the parties." Those who are entitled to its benefits can invoke its provisions. In the event that an obligation therein imposed is not fulfilled, the aggrieved party has the right to go to court and ask redress. The CBA is the norm of conduct between petitioner and private respondent and compliance therewith is mandated by the express policy of the law.3 (Citations omitted)
Article 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. (Emphasis supplied)
Although it is a rule that a contract freely entered into between the parties should be respected, since a contract is the law between the parties, there are, however, certain exceptions to the rule, specifically Article 1306 of the Civil Code, which provides:The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy.
Moreover, the relations between capital and labor are not merely contractual. "They are so impressed with public interest that labor contracts must yield to the common good . . . ." The supremacy of the law over contracts is explained by the fact that labor contracts are not ordinary contracts; they are imbued with public interest and therefore are subject to the police power of the state. However, it should not be taken to mean that provisions agreed upon in the CBA are absolutely beyond the ambit of judicial review and nullification. If the provisions in the CBA run contrary to law, public morals, or public policy, such provisions may very well be voided.5 (Citations omitted, emphasis supplied)
Section 2. Declaration of Policy. — The State recognizes the vital role of banks in providing an environment conducive to the sustained development of the national economy and the fiduciary nature of banking that requires high standards of integrity and performance. In furtherance thereof, the State shall promote and maintain a stable and efficient banking and financial system that is globally competitive, dynamic and responsive to the demands of a developing economy.
Banks are entities engaged in the lending of funds obtained through deposits from the public. They borrow the public's excess money (i.e., deposits) and lend out the same. Banks therefore redistribute wealth in the economy by channeling idle savings to profitable investments.
Banks operate (and earn income) by extending credit facilities financed primarily by deposits from the public. They plough back the bulk of said deposits into the economy in the form of loans. Since banks deal with the public's money, their viability depends largely on their ability to return those deposits on demand. For this reason, banking is undeniably imbued with public interest. Consequently, much importance is given to sound lending practices and good corporate governance.
Protecting the integrity of the banking system has become, by large, the responsibility of banks. The role of the public, particularly individual borrowers, has not been emphasized. Nevertheless, we are not unaware of the rampant and unscrupulous practice of obtaining loans without intending to pay the same.7 (Citations omitted)
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of banks is more than that of a Roman pater familias or a good father of a family. The highest degree of diligence is expected. In handling loan transactions, banks are under obligation to ensure compliance by the clients with all the documentary requirements pertaining to the approval and release of the loan applications. For failure of its branch manager to exercise the requisite diligence in abiding by the [Manual of Regulations for Banks] and the banking rules and practices, [Far East Bank and Trust Co.] was negligent in the selection and supervision of its employees. In Equitable PCI Bank v. Tan, the Court ruled:
. . . Banks handle daily transactions involving millions of pesos. By the very nature of their works the degree of responsibility, care and trustworthiness expected of their employees and officials is far greater than those of ordinary clerks and employees. Banks are expected to exercise the highest degree of diligence in the selection and supervision of their employees.9 (Emphasis supplied, citations omitted)
Section 1. Declaration of Policy. — The State shall maintain a central monetary authority that shall function and operate as an independent and accountable body corporate in the discharge of its mandated responsibilities concerning money, banking and credit....
Section 2. Creation of the Bangko Sentral. — There is hereby established an independent central monetary authority, which shall be a body corporate known as the Bangko Sentral ng Pilipinas, hereafter referred to as the Bangko Sentral.
. . . .
Section 3. Responsibility and Primary Objective. — The Bangko Sentral shall provide policy directions in the areas of money, banking, and credit. It shall have supervision over the operations of banks and exercise such regulatory powers as provided in this Act and other pertinent laws over the operations of finance companies and non-bank financial institutions performing quasi-banking functions, hereafter referred to as quasi-banks, and institutions performing similar functions.
The primary objective of the Bangko Sentral is to maintain price ability conducive to a balanced and sustainable growth of the economy. It shall also promote and maintain monetary stability and the convertibility of the peso.10
Section 4. Supervisory Powers. — The operations and activities of banks shall be subject to supervision of the Bangko Sentral. "Supervision" shall include the following:
4.1. The issuance of rules of conduct or the establishment of standards of operation for uniform application to all institutions or functions covered, taking into consideration the distinctive character of the operations of institutions and the substantive similarities of specific functions to which such rules, modes or standards are to be applied; 4.2. The conduct of examination to determine compliance with laws and regulations if the circumstances so warrant as determined by the Monetary Board; 4.3. Overseeing to ascertain that laws and regulations are complied with; 4.4. Regular investigation which shall not be oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe or sound basis: Provided, That the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed; 4.5. Inquiring into the solvency and liquidity of the institution (2-D); or 4.6. Enforcing prompt corrective action.
Sec. X338 Financial Assistance to Officers and Employees. Banks may provide financial assistance to their officers and employees, as part of their fringe benefits program, to meet the housing, transportation, household and personal needs of their officers and employees.
Financing plans and amendments thereto, shall be with prior approval of the Bangko Sentral.
§ X339.4 Reportorial requirements. Financing plans and amendments thereto shall be submitted to Bangko Sentral within thirty (30) calendar days from approval thereof by the bank's board of directors. The appropriate department of the [Supervision and Examination Sector] may require the banks concerned to submit a regular report monitoring the various transactions under the bank's financing plans for officers/employees.
All banks providing financial assistance to bank officers/employees shall submit a report on "Availments of Financial Assistance to Officers and Employees" to the Bangko Sentral within fifteen (15) banking days after end of reference semester.
Section 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 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 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. 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.
In formulating rules and regulations under this Section, the Monetary Board shall recognize the peculiar characteristics of microfinancing, such as cash flow-based lending to the basic sectors that are not covered by traditional collateral. (Emphasis supplied)
§ X178.5 Credit policies, processes and procedures. [Financial institutions] (FIs) shall have in place a sound, comprehensive and clearly defined credit policies, processes and procedures consistent with prudent standards, practices, and relevant regulatory requirements adequate for the size, complexity and scope of an FI's operations. The board-approved policies, processes and procedures shall cover all phases of the credit risk management system.
a. FIs shall establish appropriate processes and procedures to implement the credit policy and strategy. These processes and procedures, as well as the credit policy, shall be documented in sufficient detail, effectively communicated throughout the organization to provide guidance to staff, and periodically reviewed and updated to take into account new activities and products, as well as new lending approaches. Subsequent major changes must be approved by the board.
b. The credit policy shall likewise provide for the maintenance of an audit trail documenting that the credit risk management process was properly observed and identifying the unit, individual(s) and/or committee(s) providing input into the process.
c. The credit culture, which reflects the FI's credit values, beliefs and behaviors, shall likewise be articulated in the credit policy and communicated to credit officers and staff at all levels through the strategic plan. The credit practices shall be assessed periodically to ensure that the officers and staff conform to the desired standard and value.14
B. Operating Under a Sound Credit Granting Process
§ X178.6 Credit approval process. The approval process for new credits as well as the amendment, renewal and refinancing of existing credit exposures shall be aligned with the credit risk management structure and clearly articulated in an FI's written credit policy. The process shall include the different levels of appropriate approving authority and the corresponding approving authority limits, which shall be commensurate with the risks of the credit exposures, as well as expertise of the approving individuals involved. It shall also include an escalation process where approval for restructuring of credits, policy exceptions or excesses in internal limits is escalated to units/officer with higher authorities. Further, there shall be proper coordination of relevant units and individuals and sufficient controls to ensure acceptable credit quality at origination.15
§ X178.7 Credit granting and loan evaluation/analysis process and underwriting standards. Consistent with safe and sound banking practice, an FI shall grant credits only in amounts and for the periods of time essential for the effective completion of the activity to be financed and after ascertaining that the obligor is capable of fulfilling his commitments to the Fl. Towards this end, an FI shall establish well-defined credit granting criteria and underwriting standards, which shall include a clear indication of the FI's target market and a thorough understanding of the obligor or counterparty, as well as the purpose and structure of the credit and its source of repayment.
a. Fls shall conduct comprehensive assessments of the creditworthiness of their obligors, and shall not put undue reliance on external credit assessments. Credit shall be granted on the basis of the primary source of loan repayment or cash flow, integrity and reputation of the obligor or counterparty as well as their legal capacity to assume the liability.
b. Depending on the type of credit exposure and the nature of the credit relationship, the factors to be considered and documented m approving credits shall include, but are not limited to, the following:(1) The purpose of the credit which shall be clearly stated in the credit application and in the contract between the FI and the obligor;f. When granting consumer credits, an FI shall conduct its credit assessment in a holistic and prudent manner, taking into account all relevant factors that could influence the prospect for the loan to be repaid according to its terms and conditions. This shall include an appropriate consideration of the potential obligor's other debt obligations and repayment history and an assessment of whether the loan can be expected to be repaid from the potential obligor's own resources without causing undue hardship and over-indebtedness. Adequate checkings, including with relevant credit bureaus, shall he made to verify the obligor's credit applications and repayment records.16 (Emphasis supplied, citation omitted)
(2) The current risk profile (including the nature and aggregate amounts of risks, risk rating or credit score, pricing information) of the borrower, collateral, other credit enhancements and its sensitivity to economic and market developments;
(3) The sources of repayment, repayment history and current capacity to repay based on financial analysis from historical financial trends and indicators such as equity, profitability, turnover, leverage, and debt servicing ability via cash flow projections, under various scenarios;
(4) For commercial credits, the borrower's business expertise, its credit relationships including its shareholders and company directors, as applicable, and the status of the borrower's economic sector and its track record vis-a-vis industry peers;
(5) The proposed terms and conditions of the credit (i.e., type of financing, tenor, repayment structure, acceptable collateral) including covenants designed to limit changes in the future risk profile of the obligor;
. . . .
§ X304.1 General guidelines. Consistent with safe and sound banking practices, a bank shall grant loans or other credit accommodations only in amounts and for the periods·of time essential for the effective completion of the operation to be financed.
Before granting loans or other credit accommodations, a bank must ascertain that the borrower, co-maker, endorser, surety and/or guarantor, if applicable, is/are financially capable of fulfilling his/their commitments to the bank For this purpose, a bank shall obtain adequate information on his/their credit standing and financial capacities.
Endnotes:
1 LABOR CODE, art. 263. [252] Meaning of Duty to Bargain Collectively. — The duty to bargain collectively means the performance of a mutual obligation to meet and convene promptly and expeditiously in good faith for the purpose of negotiating an agreement with respect to wages, hours of work and all other terms and conditions of employment including proposals for adjusting any grievances or questions arising under such agreement and executing a contract incorporating such agreements if requested by either party but such duty does not compel any party to agree to a proposal or to make any concession.
2 552 Phil. 77 (2007) [Per J. Quisumbing, Second Division].
3 Id. at 84.
4 626 Phil. 700 (2010) [Per J. Peralta, Third Division].
5 Id. at 715-716.
6 574 Phil. 495 (2008) [Per J. Corona, First Division].
7 Id. at 506-507.
8 690 Phil. 134 (2012) [Per J. Mendoza, Third Division].
9 Id. at 145-146.
10 See also Rep. Act No. 8791, sec. 5. Policy Direction; Ratios, Ceilings and Limitations. — The Bangko Sentral shall provide policy direction in the areas of money, banking and credit.
For this purpose, the Monetary Board may prescribe ratios, ceilings, limitations, or other forms of regulation on the different types of accounts and practices of banks and quasi-banks which shall, to the extent feasible, conform to internationally accepted standards, including those of the Bank for International Settlements (BIS). The Monetary Board may exempt particular categories of transactions from such ratios, ceilings and limitations, but not limited to exceptional cases or to enable a bank or quasi-bank under rehabilitation or during a merger or consolidation to continue in business with safety to its creditors, depositors and the general public.
11 Manual of Regulations for Banks (2017).
12 The Committee has been reconstituted several times to update the MORB and to keep it consistent with banking legislative reforms, and its implementing rules and regulations, and amendments to existing policies.
13 The minimum features of the financing plan is provided for in X338.1 and X338.3 of the Manual of Regulations for Banks:
§ X338.l Mechanics. The mechanics of such financing plan shall have the following minimum features:
a. Participation shall be limited to fulltime and permanent officers and employees of the bank;
b. Financial assistance shall only be for the following purposes:
(1) The acquisition of a residential house and lot, or the construction, renovation or repair of a residential house on a lot owned and to be occupied by the officer or employee;
(2) The acquisition of vehicles, household equipment and appliances for the personal use of the officer or employee or his immediate family; or
(3) To meet expenses for the medical, maternity, education, emergency and other personal needs of the officer or employee or his immediate family;
c. Financial assistance for purposes mentioned in Items "b(1)" and "b(2)" of this Subsection shall be granted in the form of a loan, advance or other credit accommodation, installment sale, lease with option to purchase or lease-purchase arrangement where the lessee is obliged to purchase the real estate or equipment;
d. The amount and maturity of financial assistance for each purpose shall be detennined by the bank in consonance with the normal requirements thereof: Provided, That the maximum amount shall be stated as percentage or multiple of the total monthly compensation of the officer or employee and shall be within the paying capacity of the borrowing officer or employee.
Total monthly compensation shall include the basic salary and all fixed and regular monthly allowances of the officer or employee. Payments' for sickness benefits and other special emoluments which are not fixed or regular in nature, or the commutation into cash of unused leave credits shall not be included in the computation of total monthly compensation;
e. The amortization payment shall include amounts necessary to cover mortgage redemption insurance and fire insurance premiums, taxes, special assessments, and other related fees and charges;
f. Availment of the financing plan to construct or acquire a residential house and lot shall be allowed only once during the officer's or employee's tenure with the bank, except where the right over the real estate previously acquired or constructed under the financing plan is absolutely transferred or assigned to another officer or employee of the bank or to a third party: Provided, That the bank must be fully paid or reimbursed for the outstanding availment on the fmancing plan before the officer/employee is allowed to re-avail himself of the same financing plan.
An officer or employee (or his spouse) who already owns a residential house and lot shall not be qualified to avail himself of financial assistance for purposes of acquiring a residential house and/or lot.
These prohibitions notwithstanding, financial assistance for the repair or renovation of a residential house may be allowed subject to such limitation as may be prescribed by the bank pursuant to Item "d" of this Subsection;
g. Availment of the fmancing plan for the acquisition of a specific type of equipment or appliance shall be allowed not oftener than once every three (3) years: Provided, That re-availment shall be allowed only after previous obligations in connection with the acquisition of the same type of equipment or appliances have been fully liquidated; and
h. The bank shall adopt measures to protect itself from losses such as by incorporating in the plan or contract provisions requiring co-makers or co-signor, chattel, or real estate mortgages, fire insurance, mortgage redemption insurance, assignment of money value of leave credits, pension or retirement benefits.
§ X338.3 Other conditions/limitations
a. The investment by a bank in equipment and other chattels under its fringe benefits program for officers and employees shall be included in detennining the extent of the investment of the bank in real estate and equipment for purposes of Section 51 of R.A. No. 8791.
b. The investment by a bank in equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank.
c. The aggregate outstanding loans and other credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio.
Banks providing financial assistance to their officers/employees shall submit a regular report on "availments offinancial assistance to officers and employees" to the BSP within fifteen (15) banking days after end of reference semester.
The appropriate department of the [Supervision and Examination Sector] may further require banks to submit such data or infonnation as may be necessary to facilitate verification of such transactions by BSP examiners. (Emphasis supplied)
14 Manual of Regulations for Banks citing Circ. No. 855 (2014).
15 Manual of Regulations for Banks citing Circ. No. 855 (2014).
16 2017 Manual of Regulations for Banks citing Circ. No. 855 (2014).
17 BSP Circ. No. 423, series of 2004, subsec. X338.3 Other conditions/limitations
The investment by a bank in equipment and other chattels under its fringe benefits program for officers and employees shall be included in determining the extent of the investment ofthe bank in real estate and equipment for purposes of Section 51 of R.A. No. 8791.
The investment by a bank in equipment and other chattels contemplated under these guidelines shall not be for the purpose of profits in the course of business for the bank.
All loans or other credit accommodations to bank officers and employees, except those granted under the fringe benefit program of the bank, shall be subject to the same terms and conditions imposed on the regular lending operations of the bank. Loans or other credit accommodations granted to officers shall, in addition, be subject to the provisions of Section 36 of R.A. No. 8791 and Sections X326 to X336 but not to the individual ceilings where such loans or other credit accommodations are obtained under the bank's fringe benefits program.
The aggregate outstanding loans and other credit accommodations granted under the bank's fringe benefits program, inclusive of those granted to officers in the nature of lease with option to purchase, shall not exceed five percent (5%) of the bank's total loan portfolio.
18 552 Phil. 77 (2007) [Per J. Quisumbing, Second Division].
19 519 Phil. 176 (2006) [Per J. Callejo, Sr., First Division].