The implications of Supreme Court ruling in G.R. no. 131622 on determining loan interest rates in commercial banking institutions

• Main Author: Triviño, Jyro B.
• Format: text
• Published: Animo Repository 2012
• Subjects: Interest—Law and legislation—Philippines; Bank loans—Law and legislation—Philippines; Banking and Finance Law; Commercial Law; Law
• Online Access: https://animorepository.dlsu.edu.ph/faculty_research/12873
• Institution: De La Salle University

The pricing for interest rate was deemed crucial by commercial banks since it determines their profitability. A judicial decision in G.R. No. 131622 formed part of the legal system in the Philippines that could affect interest rates on loans. The study was undertaken to assess how the judicial decision will limit or benefit commercial banking institutions in determining loan interest rates to their clients. It looked into some legal provisions and business models that are related in determining interest rates. An interview with a Vice President for multi-national commercial bank was conducted using the analytical approach to research questions. The interviewee indicated that Bangko Sentral ng Pilipinas can set guidelines and bell weather indicators but the actual interest rate that the bank charges its borrowers is between the lender and borrower. This means that the borrower has an option to pre-terminate its loan if it can find a cheaper source of funding. This argument was supported by Article 1306 of the Civil Code, which allows contracting parties to establish stipulations, clauses, terms and conditions provided these are not contrary to law, morals, good customs, public order, or public policy. The interviewee also mentioned that limiting the interest rate will encourage borrowers even with bad credit standing to avail of relatively cheap loans, which would be detrimental to the bank's asset quality.