HOW did a P1-million loan from the Development Bank of the Philippines (DBM) balloon to P5.4 million even after the borrower paid P902,800?
That this has happened would no doubt puzzle many, but not the bankers who make good on other people’s money (OPM).
You could and should not blame the bankers, because that is how they manage and make banks profitable. To them, OPM becomes their only investment product, paying depositors 0.25 percent per annum and lending OPM at higher rates of interest.
Three weeks ago, Duediligencer met a fishpond owner who was scheduled to borrow from P3 million up to P5 million at a very high 11.5-percent interest, despite a five-hectare property for collateral. It’s up to you to make the calculation on the difference between what a bank pays savings deposits earnings and how much it charges when it lends.
Let me go back to the DBP borrowers, who did not pay outright the amount arrived at by DBP’s loan personnel. They sued the bank and won the first round at a regional trial court.
When they lost at the Court of Appeals, they went to the Supreme Court where they scored a major victory against DBP. It has been a long fight from the time the government-owned bank first computed the loans at a total of P5.4 million to the series of threats of to actual foreclosures of collaterals.
The High Court, which promulgated the ruling on July 1, 2013, did not free the borrowers from paying what they owed to DBP. While it questioned how the bank’s loan of P939,973.33 increased to P5.2 million, it at the same time eased the borrowers’ load of paying additional interests and penalty charges.
The same thing with the P40,000 loan, which, as DBP computed, became P177,075.99.
In lending P1 million in two tranches—first P40,000 and then P960,000 in the 60s and 70s—big money in those days—of which P902,800 has already been paid, DBP, according to the High Court, has overcharged the borrowers.
Here are DBP’s computations:
For remaining principal of P939,973.33, DBP charged the borrowers “regular interest” of P561,037.14; advances of P34,589.45; additional interest f P2.6 million and penalty charges of P1.1 million.
For the loan of P40,000, DBP levied the borrowers regular interest of P5,046.97; additional interest of P92,113.56 and penalty charges of P39,915.46.
The promissory notes, according to the High Court, provided only for, among others, 9-percent to 12-percent interest per annum plus penalty charges. Nowhere do they contain any provision that would allow DBP to charge the borrowers additional interest of P2.6 million.
“Moreover,” the High Court said, “It is incomprehensible how the penalty charge of 1/3 percent per month on the overdue amortization could amount to P1,086,147.19 while the regular interest, which was stipulated at the higher rate of 12 percent per annum, amounted to only P561,037.14 or about half of the amount allegedly due as penalties.”
The High Court also said the same thing about the P40,000 loan that the promissory note did not “authorize the imposition of additional interest” of P92,113.56, which “is even larger that the regular interest” of P5,046.97.
In ruling against DBP’s additional interest charges, the High Court remanded the case to the Regional Trial Court of General Santos City “for the proper determination of the total loan obligations” of the borrowers based only on interest charges as stipulated in the loan deal.
The good news to the borrowers is the portion of the High Court’s ruling nullifying the foreclosure sale of the borrowers’ mortgaged properties held on July 11, 1994, for DBP’s failure to inform the borrowers.
But the bad news is DBP could “conduct another foreclosure sale based on the recomputed amount of the loan obligation, if necessary.”
The story on bloated bank charges is based on G.R. No. 177050, which had for petitioners Carlos, Consolacion, Edmundo, Carlito, all surnamed Lim; Shirley Leodadia Dizon and Arleen Lim Fernandez against DBP.
The Lims’ perseverance in fighting a bank’s unnecessary charges could serve as a lesson to public and listed companies on their borrowings. Who knows some of them could also have fallen victims to banks’ “creative” computations.
Who knows some public companies that are either on the verge of bankruptcy or financially distressed may be on similar situation as the Lims, who had wanted only to expand their cattle-raising business but almost lost their property had it not been for the High Court’s favorable ruling.
If certain listed companies have over-borrowed, then it is up to the Securities and Exchange Commission to find out where their borrowings went or how their managers used the money. It could also be possible that some of them, if not all, have been victims of lenders’ “creative” computations.