DEPOSITS, LOANS AND OTHER OPERATIONS

1. Acceptance of Demand Deposits" -

A bank, other than a universal or commercial bank/ cannot accept or create demand deposits ^except upon prior approval of>aod-stjbject to such conditions and rules as may be prescribed by Monetary Board.

1) a creditor-debtor relationship. This is because the bank is not required to return the very same currency bill that was deposited. Standard of Diligence Required of Banks for Deposits: Simex Int'l (Manila), Inc. v. Court of Appeals 183 SCRA 360 (1990) Banks are required to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship." The fiduciary nature of the relationship between a bank and its depositors means that the bank is under obligation to treat the accounts of his depositors with meticulous care whether such account consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in this case may not have been attended with malice and bad faith, nevertheless, it caused serious anxiety, embarrassment and humiliation to entitle recovery of moral damages against the bank.

Philippine Bank of Commerce v. Court of Appeals 269 SCRA 695 (1997) In the case of banks, the degree of diligence required is more than that of a good father of a family. Considering the fiduciary nature of their relationship with their depositors, banks are duty bound to treat the accounts of their clients with the highest degree of care. Solidbank v. Court of Appeals 410 SCRA 562 (2003) The law imposes on banks high standards in view of the fiduciary nature of banking. Sec. 2 of GBL of 2000 declares that the State recognizes the "fiduciary nature of banking that requires high standards of integrity and performance," which is a statutory affirmation of Supreme Court decisions, starting the 1990 case of Simex International v. Court of Appeals, holding that "the bank is under obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of their relationship."

This fiduciary relationship means that the bank's obligation to observe "high standards of integrity and performance" is deemed written into every deposit agreement between a bank and its depositor. The fiduciary nature of banking requires banks to assume a degree of diligence higher than that of a good father of a family under Art. 1172 of the Civil Code. Sec. 2 of GBL prescribes the statutory diligence required from banks - that banks must observe "high standards of integrity and performance" in servicing their depositors. Although GBL took effect almost nine years after the unauthorized withdrawal from the savings account, jurisprudence at the time of the withdrawal already imposed on banks the same high standard of diligence required under GBL. Philippine Banking Corp. v. Court of Appeals 419 SCRA 487 (2004) A bank is required to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary

nature of their relationship, which means that the bank's obligation to observe high standards of integrity and performance, and is deemed written into the deposit agreement between a bank and its depositor

Bank Depositor Relationship Is Not One of Trust:

BPI Family Bank v. Buenaventura 471 SCRA 431 (2005) the fiduciary nature of bank-depositor relationship does notjeonvert however, the contract between the bank and its depositors from S' simpjf* loan to a trust agreement, whether express or implied, failure by ttie bank to pay the depositor is failure to pay a simple loan, and not a breach of trust. The law simply imposes on the bank a higher standard of integrity and performance in complying with its obligations under the contract of simple loan, beyond those required of non-bank debtors under a similar contract of simple loan.

Consolidated Bank v. Court of Appeals 410 SCRA 562 (2003) fiduciary nature of banking does not convert a simple loan into a trust agreement because banks do hof accept deposits to enrich depositors but to earn money for themselves. The law allows banks to offer the lowest possible interest rate to depositors while charging the highest possible interest rate on their own borrowers. The interest spread or differential belongs to the bank and noMo the depositors who are not 'cestui depositors que trust of banks. If are cestui que trust of banks, then the interest spread or income belongs to the depositors, a situation that Congress certainly did not intend in enacting the GBL.

Risk-Based Capital

Monetary Board shall prescribe minimum ratio which the net worth of a bank must bear to its total risk assets which may include contingent accounts, and may

a) Require that such ratio be determined on the basis of the Net Worth and Risk Assets of a bank and its subsidiaries, financial or otherwise;

b) Prescribe composition and manner of determining Net Worth and Total Risk Assets of banks and their subsidiaries.

PROVIDED: "Sec. 1 (i) , Monetary Board may require or suspend compliance with such ratio whenever necessary for a maximum period of 1 year;

(ii) Ratio applied uniformly to banks of same category.

Limit On Loans, Credit Accommodations and Guarantees (Single Borrower's Limit)

Except as Monetary Board may otherwise prescribe for reasons of national interest, total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association,

corporation or other entity shall at no time exceed 20% of the Net Worth of such bank.

Unless Monetary Board prescribes otherwise, SBL may be increased by an additional 10% of Net Worth, provided additional amount is supported adequately by trust receipts, shipping documents, warehouse receipts or other similar documents transferring or securing title covering readily marketable, nonperishable goods which must be fully covered by insurance, which shall include:

1. Dfrect liability of maker or acceptor of paper discounted with or sold to such bank and liability of general indorser, drawer or guarantor who obtains a loan or other credit accommodation from or discounts paper with or sells papers to such bank;

2. In the case of individual who owns or controls a majority interest in a corporation, partnership, association or any other entity, the liabilities to such bank;

3. In case of the corporation, all liabilities to such bank of all subsidies in which such corporation owns or controls a majority interest; and

4. In case of partnership, association or other entity, the liabilities of the members thereof to such bank.

Coverage

Loans and other credit accommodations, deposits maintained with, and usual guarantees by a bank to any other bank or non-bank entity, whether locally or abroad, shall be subject to the limits as herein prescribed.

Inclusion of Parent Corporation

Even if parent corporation, partnership, association, entity or an individual who owns or controls a majority interest in such entities has no liabilities of subsidiary corporations or members of the partnership, association, entity or such individual under certain circumstances, including but not limited to any of the following situations:

Parent corporation, partnership, association, entity or individual guarantees the repayment of the liabilities;

Liabilities were incurred for the accommodation of parent corporation or another subsidiary or of the partnership or association or entity or such individuals; or

Subsidiaries though separate entities operate merely as departments or divisions of a single entity.

Restriction on Bank Exposure to Directors, Officers, Stockholders and Related Interests (DOSRI)<° - No director or officer of any bank shall, directly or indirectly, for himself or as the representative or agent of others.

1. Borrow from such bank; 2. nor shall he become a guarantor, indorser or surety for loans from such bank to others; 3. nor in manner be an obligor or incur any contractual liability to the bank.

EXCEPT: w/ written-approval of majority of all Directors of the bank, excluding director concerned.

Principles Involved

1. Dealings of bank with any of its directors, officers or stockholders and their related interests shall be upon terms no less favorable to bank than those offered to others;

2. After due notice to Board of Directors, the office of any bank director or officer who violates DOSRI rules may be declared vacant and director or officer shall be subject to penal provisions of New Central Bank Act;

3. DOSRI accounts shall be limited to an amount equivalent to their respective unencumbered deposits and book value of their paid-in capital contribution in the bank;

PROVIDED:

1. Loans, credit accommodations and guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded from such limit;

2. Loans, credit accommodations and advances to officers in form of fringe benefits granted shall not apply to loans, credit accommodations and guarantees extended by a cooperative bank to its cooperative shareholders.

Go v. Bangko Sentral ng Pilipinas 604 SCRA 322 (2009)

•Banks are not*created for the benefit of their directors and officers, who cannot therefore use the assets of the bank for their own benefit>except as may be permitted by law.

Congress has thus deemed it essential to impose restrictions on borrowings by bank directors and officers in order to protect the public, especially the depositors.

Loans and Other Credit Accommodations

a. Monetary Board Authority - Monetary Board is authorized:

1. Unsecured Loans or Other Credit Accommodations - To issue such regulations as it may deem necessary with respect to unsecured loans or other credit accommodations that may be granted by banks."

2. Other Security Requirements for Bank Credits - To prescribe by regulations further security requirements to which the various types of bank credits shall be subject, and in accordance with its authority in Sec. 106 of New Central Bank Act, to reduce maximum ratios established in Sees. 36 and 37 of GBL, or, in special cases, increase maximum ratios established therein."

3) Prescribe Terms and Conditions of Loans and Other Credit Accommodations - in accordance its authority in Sec. 106 New Central Bank Act, of taking into account requirements of the economy for effective utilization of long term funds, prescribe maturities as well as related terms and conditions of various types of bank loans and other credit accommodations.

BUT: Any change n maximum maturities shall apply only to loans and other credit accommodations made after date of such action.

ALSO: Monetary Board shall regulate interest imposed on micro-finance borrowers by lending investors and similar lenders, such as, butjiot limited to, unconscionable rates of interest collected on salary loans and similar credit accommodations.

4) Renewal or Extension of Loans - Prescribe by regulation the conditions and limitations under which bank may grant extensions or renewals of its loans and other credit accommodations.

Nature of Bridge Financing:

De Vera, Jr. v. Court of Appeals 367 SCRA 534 (2001)

Essence of bridge financing loans js-to obtain funds through an interim loan, while the main loan is'not yet available.

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