CONCEPT

• Banks are entities engaged in the lending of funds obtained in the form of deposits
 CONCEPT
• A bank is always a stock corporation
• SEC
• BSP
 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. (Sec. 4, GBL)
 NATURE OF BUSINESS
• Subject to heavy and close supervision and/ or regulation by Bangko Sentral ng Pilipinas
• Required to exercise utmost diligence in the handling of deposits
• Strikes and Lockouts
• Any strike or lockout involving banks, if unsettled after 7 calendar days shall be reported by the
BSP to the Secretary of Labor who has 2 options
(1) He may assume jurisdiction over and decide the dispute
(2) Certify the same to the NLRC for compulsory arbitration
 DILIGENCE REQUIRED OF BANKS
• ANNA MARIE L. GUMABON vs. PHILIPPINE NATIONAL BANK (G.R. No. 202514,
July 25, 2016,
The PNB cannot simply substitute the mere photocopies of the subject documents for the
original copies without showing the court that any of the exceptions under Section 3 of Rule
130 of the Rules of Court applies. The PNB's failure to give a justifiable reason for the absence
of the original documents and to maintain a record of Anna Marie's transactions only shows
the PNB's dismal failure to fulfill its fiduciary duty to Anna Marie.38 The Court expects the
PNB to "treat the accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship.
 DILIGENCE REQUIRED OF BANKS
• Section 2 of Republic Act No. 8791,52 declares the State's recognition of the "fiduciary
nature of banking that requires high standards of integrity and performance.”
• The bank is required to assume a degree of diligence higher than that of a good father of a
family.
• The bank is not absolved from liability by the fact that it was the bank's employee who
committed the wrong and caused damage to the depositor.56 Article 2180 of the New Civil
Code provides that the owners and managers of an establishment are responsible for
damages caused by their employees while performing their functions
 PHILIPPINE NATIONAL BANK VS. JUAN F. VILA
(G.R. NO. 213241, AUGUST 1, 2016, PEREZ

Before approving a loan application, it is standard operating procedure for banks and
financial institutions to conduct an ocular inspection of the property offered for mortgage
and to determine the real owner(s) thereof. The apparent purpose of an ocular inspection is
to protect the "true owner" of the property as well as innocent third parties with a right,
interest or claim thereon from a usurper who may have acquired a fraudulent certificate of
title thereto.
 PHILIPPINE NATIONAL BANK VS. JUAN F. VILA
(G.R. NO. 213241, AUGUST 1, 2016, PEREZ

PNB clearly failed to observe the required degree of caution in readily approving the loan and
accepting the collateral offered by the Spouses Comista without first ascertaining the real
ownership of the property. It should not have simply relied on the face of title but went further
to physically ascertain the actual condition of the property. That the property offered as
security was in the possession of the person other than the one applying for the loan and the
taxes were declared not in their names could have raised a suspicion.
 NATURE OF BANK FUNDS AND
BANK DEPOSITS
• The fiduciary nature of a bank-depositor relationship does not convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or
implied. Failure by the bank to pay the depositor is failure to pay a simple loan, and not a
breach of trust.
 CLASSIFICATION OF BANKS
• Universal Banks
• Public offering of shares is necessary for domestic banks seeking authority to act as universal
bank
• Commercial Banks
• Thrift Banks
 DISTINCTIONS
• Capitalization
• Purpose
• Powers & Functions
 2 MAIN FUNCTIONS OF BANKS
• Deposit Function
• Loan Function
 DEPOSIT FUNCTION

• A function of a bank that allows it to receive money from the public with the obligation of
safely keeping it
 RELATIONSHIP BETWEEN THE
BANK AND ITS DEPOSIT
• All kinds of bank deposits, whether fixed, savings or current are to be treated as loans and
are to be covered by the law on loans (Art. 1980, Civil Code)
• The relationship between depositor and a bank is that of a creditor and debtor in relation to
the bank deposit’s functions
CAN MINORS OPEN BANK ACCOUNTS IN
THEIR OWN RIGHT?
 CAN MINORS OPEN BANK
ACCOUNTS IN THEIR OWN RIGHT?
• At least seven years of age
• Are able to read and write
• Have sufficient discretion
• Not otherwise disqualified by ay other incapacity
• Provided they could only open savings and time deposit
(Sec. 1, P.D. No. 734)
 LOAN FUNCTION
• A bank shall grant loans and other credit accommodations only in amounts and for the
periods of time essential for the effective completion of the operations to be financed.
 LIMITATIONS ON THE POWER OF
THE BANK TO GRANT LOANS
• Cash Loan
• Loans against Real Estate
• Loans against Real Property
• Loans granted to DOSRI
 CASH LOAN: SINGLE BORROWER’S
LIMIT
• aims to prevent the bank from making excessive loans and other credit accommodations to a
single borrower or related borrower thereby safeguarding the bank against exposure to a
single client
• Allocates the resources of the bank to various segments of the economy
 CASH LOAN: SINGLE BORROWER’S
LIMIT
Threshold:
Section 32. Except as the Monetary Board may otherwise prescribe, the direct indebtedness to
a savings and mortgage bank of any person, company, corporation or firm, including in the
indebtedness of the company or firm the indebtedness of the several members thereof, for
money borrowed, with the exception of money borrowed against obligations of the Central
Bank or of the Philippine Government, or borrowed with the full guarantee by the Government
of payment of principal and interest, shall at no time exceed twenty-five per cent (25%) of
the unimpaired capital and surplus of the bank:
Note: 25 percent to 30 percent for a period of six (6) months from 19 March 2020, pursuant to
national interest (BSP Memorandum No. M-2020-011)
 LOANS AGAINST REAL ESTATE

• Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations against real estate shall not exceed seventy-five percent (75%) of the
appraised value of the respective real estate security, plus sixty percent (60%) of the
appraised value of the insured improvements, and such loans may be made to the owner of
the real estate or to his assignees. (Sec. 37, GBL)
 LOANS AGAINST PERSONAL
PROPERTY
• Except as the Monetary Board may otherwise prescribe, loans and other credit
accommodations on security of chattels and intangible properties such as, but not limited to,
patents, trademarks, trade names, and copyrights shall not exceed seventy-five percent
(75%) of the appraised value of the security, an such loans and other credit accommodation
may be made to the title-holder of the chattels and intangible properties or his assignees.(
Sec. 38, GBL)
 DOSRI
• D- Director
• O- Officer
• S- Stockholder
• RI- Related Interest
 DOSRI
Purpose:
The prohibition is intended to protect the public, especially the depositors from the
overborrowing of bank funds by bank officers, directors, stockholdrers and related interests, as
such overborrowing may lead to failures.
While directors have great powers as directors, they have no special privileges as individuals.
They cannot use the assets of the bank for their own benefit except as permitted b law.
Stringent restrictions are placed about them so that when acting both for the bank and for one
of themselves at the same time, they must keep within the prescribed lines regarded by the
legislature as essential to safety in the banking business. ( Sariano vs. People, G.R. No.
162336, Feb. 1, 2010)
 DOSRI
• No director or officer of any bank shall, directly or indirectly, for himself or as the
representative or agent of others, borrow from such bank nor shall he become a guarantor,
endorser or surety for loans from such bank to others, or in any manner be an obligor or
incur any contractual liability to the bank except with the written approval of the majority of
all the directors of the bank, excluding the director concerned: Provided, That such written
approval shall not be required for loans, other credit accommodations and advances granted
to officers under a fringe benefit plan approved by the Bangko Sentral. ( Sec. 36, GBL)
 EFFECT UPON DIRECTOR /
OFFICER
• After due notice to the board of directors of the bank, the office of any bank director or
officer who violates the provisions of this section may be declared vacant and the director or
officer shall be subject to the penal provisions of the New Central Bank Act. (Sec. 36, GBL)
 AMOUNT OF LOAN TO BE
EXTENDED TO DOSRI
The outstanding loans credit accommodations and guarantees which a bank may extend to
each of its stockholders, directors, or officers and their related interests, 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, however, That loans, credit accommodations and
guarantees secured by assets considered as non-risk by the Monetary Board shall be excluded
from such limit: Provided, further, That loans, credit accommodations and advances to officers
in the form of fringe benefits granted in accordance with rules as may be prescribed by the
Monetary Board shall not be subject to the individual limit.
 SUMMARY OF DOSRI
REQUIREMENT
1. The borrower is a director, officer or any stockholder of a bank
2. He contracts a loan or any form of financial accommodation
3. The loan or financial accommodation is from: (a) his bank or (b) a bank that is a subsidiary
of a bank holding company of which both of his bank and lending bank are subsidiaries,
or (c) a bank in which a controlling proportion of the shares is owned by the same interest
that owns a controlling proportion of the shares of his bank and
4. The loan or financial accommodation of the director, officer or stockholder, singly or with
that of his related interest, is in excess of 5% of the capital and surplus of the lending bank
or in the maximum amount permitted by law, whichever is lower. (BSP Circular No. 170,
Art. 26, NCBA)
 COMMISSION OF ESTAFA IS NOT
INCOMPATIBLE WITH THE
VIOLATION OF DOSRI LAW
The bank money (amounting to ₱8 million) which came to the possession of petitioner was money
held in trust or administration by him for the bank, in hisfiduciary capacity as the President of said
bank.47 It is not accurate to say that petitioner became the owner of the ₱8 million because it was the
proceeds of a loan. That would have been correct if the bank knowingly extended the loan to petitioner
himself. But that is not the case here. According to the information for estafa, the loan was supposed
to be for another person, a certain "Enrico Carlos"; petitioner, through falsification, made it appear that
said "Enrico Carlos" applied for the loan when in fact he ("Enrico Carlos") did not. Through such
fraudulent device, petitioner obtained the loan proceeds and converted the same. Under these
circumstances, it cannot be said that petitioner became the legal owner of the ₱8 million. Thus,
petitioner remained the bank’s fiduciary with respect to that money, which makes it capable of
misappropriation or conversion in his hands. ( Soriano vs. People, 2010)
 RESTRICTIONS EXTEND TO
INDIRECT BORROWINGS
The prohibition in Sec. 83 is broad enough to cover various modes of borrowing. It covers
loans by a director or officer which are made either (1) directly, (2) indirectly, (3) himself, (4)
or as the representative or agent of others. It applies even if the director or officer is a mere
guarantor, indorser or surety for someone else’s loan or is any manner an obligor for money
borrowed from the bank or loaned by it.
 STIPULATION ON INTERESTS
A banking institution which has been declared insolvent and subsequently ordered closed by
the Central Bank of the Philippines cannot be held liable to pay interest on bank deposits
which accrued during the period when the bank is actually closed and non-operational
(Fidelity Savings and Mortgage Bank vs. Hon. Pedro Cenzon, G.R. No. L-46208, April 5,
1990)
 STIPULATION ON INTERESTS
Stipulated interest rates of 3% per month and higher are excessive, iniquitous, unconscionable
and exorbitant. Such stipulations are void for being contrary to morals, if not against the law.
While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively removed
the ceiling on interest rates for both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as granting carte blanche authority to
lenders to raise interest rates to levels which would either enslave their borrowers or lead to a
hemorrhaging of their assets. (Ileana Macalinao vs. Bank of the Philippine Islands, G.R. No.
175490, September 17, 2009)
 STIPULATION ON INTERESTS
Section 78 of the General Banking Act requires payment of the amount fixed by the court in
the order of execution, with interest thereon at the rate specified in the mortgage contract, and
all the costs and other judicial expenses incurred by the bank or institution concerned by
reason of the execution and sale and as a result of the custody of said property less the income
received from the property. (Heirs of Estelita Burgos-Lipat namely: Alan B. Lipat and Alfredo
B. Lipat, Jr. vs. Heirs of Eugenio D. Trinidad namely: Asuncion R. Trinidad, et. al., G.R. No.
185644, March 2, 2010)