Amendments to the provisions of Sections X268 and X269 and the corresponding subsections of the Manual of Regulations for Banks covering the guidelines on the BSP's Rediscounting Facility

CIRCULAR NO. 630 Series of 2008

Pursuant to Monetary Board Resolution Nos. 1457 and 831 and 832  dated 30 November 2006 and 02 July 2008, respectively, the provisions of Sections X268 and X269 and the corresponding subsections of the Manual of Regulations for Banks (MORB), covering the guidelines on the Bangko Sentral ng Pilipinas (BSP) Rediscounting Facility are hereby amended as follows:

Sec. X268 Rediscounting Line.  The following guidelines shall govern the operations of the BSP’s rediscounting line by banking institutions.

§ X268.1 Credit Information System (CRIS).  The rediscounting availments of all eligible banks shall be drawn against their rediscounting line which is based on their total credit score under the CRIS.  The scoring system under the CRIS shall consider the following factors:

a. Management and Risk Management System

(1)  Management (2)  Risk Management System

b. Financial Indicators

(1) Capital Adequacy (2) Asset Quality (3) Profitability (4) Liquidity

c. Credit Experience

(1) Compliance with the Terms and Conditions of the Loan and Other BSP Regulations (2) Credit Experience with other Financial Institutions

The CRIS guidelines shall be reviewed on a regular basis by a Credit Committee created under MB Resolution No. 832 dated 02 July 2008, to maximize its effectiveness in managing the credit risk of the BSP.

§ X268.2   Application Procedure.  Banks applying for a rediscounting line shall submit their application in the prescribed form (RL Form No. 1) to the Department of Loans and Credit (DLC), BSP-Manila or the appropriate Regional Loans and Credit Division (RLCD), BSP Regional Offices in Cebu, Davao and La Union, together with the following documents:

Board Resolution duly signed by the Board of Directors (BOD) of the applicant bank, authorizing the bank to apply for a rediscounting line with the BSP and designating the officer/s of the bank to sign and endorse documents pertaining thereto, together with their specimen signature/s;

Articles of Incorporation (for new applicants only) and amendments, if any;

Organizational Chart (for new applicants only);

List of BOD and principal officers (top three executive officers) and their education/training and work experience;

Annual Report/Audited Financial Statements for the immediately preceding year; and

For banks applying for microfinance facility, a copy of the Manual of Operations pertaining to microfinance operations.

§ X268.3   Approval/Renewal of the Line.  The approval/renewal of the Line shall be subject to the bank’s full compliance with the following requirements:

Minimum capital prescribed under  §X106.1 and §X106.2 of the MORB, as amended, based on the latest available report of the Supervisory Data Center (SDC);

Capital adequacy ratio as required under Sec. X116 of the MORB, based on the latest available report of the SDC except those with capital build-up program approved by the Monetary Board (MB);

Required reserves against deposit liabilities/deposit substitutes for two consecutive weeks based on the latest available report of the SDC;

NPL ratio lower or equal to the industry average adjusted upward by two percent  based on the latest available report of the SDC, or the allowable NPL ratio approved by the MB;

Positive demand deposit account (DDA) balance with the BSP  as of date of application;

No past due obligations or collateral deficiencies on account of matured notes, unremitted collections, missing collaterals or ineligible papers with the BSP as of date of application;

A CAMELS Composite Rating of “3” or higher based on the latest general examination of the appropriate Examination Department of the Supervision and Examination Sector (SES); and

The ratio of past due direct and indirect loans to directors, officers, stockholders, and their related interests (DOSRI) to the aggregate past due loans should not be more than five percent based on the latest available report of the SDC.

Banks applying for the microfinance facility shall also comply with the following requirements based on the latest available report of the SES:

At least one year track record in microfinance;

At least 500 active microfinance borrowers;

A Portfolio At Risk ratio (PAR) of not more than five percent;

The ratio of total collections (excluding prepayments) during the preceding 12-month period to total collectibles (past due microfinance loans, beginning plus matured loans/principal amortizations due for the period) should not be less than 95%; and

Officers and staff responsible for microcredit operations shall have completed: 1) a training course on microfinance; and 2) at least one year experience in microlending activities.

The approval, disapproval, extension, amendment, cancellation, suspension and restoration of the rediscounting line shall be delegated to a Credit Committee composed of the Assistant Governor/Managing Director (MD) of the Monetary Operations Sub-Sector, MD of the Regional Monetary Affairs Sub-Sector, and the Director of the DLC.

Banks with approved rediscounting line shall, thereafter, submit the following:

Rediscounting Line Agreement (RL Form No. 3)

Surety Agreement executed by the controlling interest (single stockholder, natural or juridical owning more than 50% of the voting stocks) obligating himself/itself jointly and severally with the bank to pay promptly on maturity, or when due, the BSP, its successors or assigns, the bank’s outstanding obligations with the BSP (RL Form No. 4).

For new applicant rural/cooperative banks with designated custodian bank, a tripartite depository agreement (RL form No. 2) by and among the applicant bank, designated depository bank (duly concurred by its Head Office) and the DLC or RLCD;

§ X268.4   Amount of Line.  The amount of rediscounting line shall be based on the total credit score obtained by the applicant bank computed under the CRIS guidelines which ranges from 50% to 200% of adjusted net worth.

§ X268.5  Term of the Line.  The term of the line shall be for one year unless sooner cancelled, suspended, amended or extended by the Credit Committee. The line is renewable annually upon submission of application one month before the expiry of said line.  Should there be special circumstances or information from the SES that may adversely affect the credit worthiness of a bank in the intervening period, the rediscounting line of the bank concerned will be reviewed immediately and acted upon accordingly.

Sec X269 Rediscounting Availments.  To avail of the rediscounting facility of the BSP, banks shall enroll in the Electronic Rediscounting System (eRS) by executing and submitting to the DLC or the RLCD a Notarized Electronic Rediscounting System Participation Agreement.

§ X269.1  Eligibility Requirements at the Time of Availment.  Banks availing of the BSP Rediscounting Facility must have at the time of availment with the BSP:

A positive DDA balance

No past due obligations

No collateral deficiencies on account of matured notes, unremitted collections, missing collaterals or ineligible papers

§ X269.2  Eligible Papers and Collaterals.   The BSP shall accept credit instruments covering all economic activities except the following:

Interbank loans

Extended/Restructured loans

Past due loans

Unsecured loans

Personal consumption loans

Loans to non-bank financial institutions

Loans funded from other borrowings, e.g., government financial institutions or  multi-lateral agencies

Credit instruments offered as collateral shall be subject to the eligibility requirements provided under Section 82 of RA No. 7653.

a. Commercial Credits – Bills, acceptances, promissory notes (PNs) and other credit instruments with maturities of not more than 180 days from the date of their rediscount, discount or acquisition by the BSP and resulting from transaction related to:

(1) the importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or (2) the storing of non-perishable goods and products which are duly insured and deposited, under conditions assuring their preservation, in authorized bonded warehouses or in other places approved by the MB.

Credit instruments acquired under commercial credits shall be secured either by:

Type of Collateral

Collateral Value

(1)

Duly notarized assignment of export or domestic letters of credit, confirmed purchase order, sales contract, quedans

Shall equal or exceed the outstanding balance of the credit instrument

(2) Trust receipts

Shall equal or exceed the outstanding balance of the credit instrument

(3) Duly registered mortgage on real property

70% of the appraised value shall equal or exceed the outstanding balance of the PN

(4) Credit guarantees/sureties issued by the Industrial Guarantee and Loan Fund (IGLF), the Small Business Corporation (SBC) and the national government

Shall equal or exceed the outstanding balance of the PN

(5)

Credit guarantees/sureties issued by the Credit Surety Fund (CSF) jointly established by cooperatives and local government units

Shall equal or exceed 80% the outstanding balance of the PN

b. Production Credits – Bills, acceptances, PNs and other credit instruments having maturities of not more than 360 days from the date of their rediscount, discount or acquisition by the BSP and resulting from transactions related to the production or processing of agricultural, animal, mineral, industrial and other products.

Credit instruments acquired under production credits shall be secured by a duly registered mortgage on real property, 70% of the appraised value of which equals or exceeds the outstanding balance of the PN.

c.   Other Credits – Special credit instruments not otherwise rediscountable under the immediately preceding items (a) and (b) such as but not limited to microfinance, housing, services, agricultural loans with long gestation period and other eligible economic activities with maturity of not more than 10 years from date of their rediscount, discount or acquisition of the BSP.

Credit instruments acquired under other credits shall be secured by:

Type of Collateral  Collateral Value

(1) Duly registered mortgage on real property

70% of the appraised value shall equal or exceed the outstanding balance of the PN

(2) Duly notarized assignment of receivables from service contracts

Shall equal or exceed the outstanding balance of the PN

(3) Credit guarantees/sureties issued by the IGLF, the SBC and the national government

Shall equal or exceed the outstanding balance of the PN

(4) Credit guarantees/sureties issued by the CSF jointly established by cooperatives and local government units

Shall equal or exceed 80% of the outstanding balance of the PN

(5) Other collaterals acceptable to the BSP, e.g., government securities

Current market value shall equal or exceed the outstanding balance of the PN

For housing loans, the lien or mortgage shall cover the property being financed.

Unsecured loans may be accepted for rediscounting provided they are:

Microfinance loans, or

Loans secured by a duly registered mortgage on real property of the bank, 70% of the appraised value of which equals or exceeds the outstanding balance of the unsecured PN and other collaterals acceptable to the BSP, e.g., government securities.

§ X269.3 Loan Availment Procedures. Banks availing of the rediscounting facility shall submit their loan applications electronically to the BSP using their eRS registered computers.

Upon receipt of confirmation of loan approval:

Banks shall execute the Promissory Notes with Trust Receipt Agreement  and Deed of Assignment (PNTRADA) in favor of the BSP [RL Form No. 7 for peso and RL Form No. 8 for dollar and yen], signed by the authorized officer/s of the bank.

Banks authorized to hold-in trust the rediscounted credit instruments and underlying collaterals shall segregate and keep the same together with the PNTRADA at a secured place within their premises under the custody of an accountable officer.

Banks with custodianship agreements shall deposit with their respective depositary/custodian bank the rediscounted credits instruments, underlying collaterals and the PNTRADA not later than the next banking day from date of loan grant, receipt of which shall be acknowledged by the depositary bank in the List of Rediscounted Loans.

§ X269.4  Loan Value.  The loan value of all eligible papers shall be 80% of the outstanding balance of the borrower’s credit instrument.

§ X269.5  Maturities.  The maturities of BSP rediscounts are as follows:

a. Commercial Credits(1) Export Packing (2) Trading (3) Transport(4) Quedan

180 days from date of rediscount but shall not go beyond the maturity date of the credit instrument

(5) Export Bills (EBs) * At Sight * Usance Export Bill

15 days from purchase date Term of draft but not to exceed 60 days from shipment date

b. Production Credits

360 days from date of rediscount but shall not go beyond the maturity date of the PN

c. Other Credits

Maximum term of 10 years but shall not go beyond the maturity date of the credit instrument

§ X269.6  Rediscount/Lending Rates and Liquidated Damages.  The rediscount rates for peso, dollar and yen loans shall be as follows:

a. PesoRediscounts

Based on the applicable Treasury Bill (TB) rates from the last auction of the preceding week as follows:

Loan Maturity

Applicable TB Rates

90 days or less

91-day

91-180 days

182-day

181-360 days

364-day

>360 days

364-day subject tore-pricing every year

b. Dollar/Yen Rediscounts

Based on their respective London Inter-Bank Offered Rate (LIBOR) for the last working day of the immediately preceding month.

The lending rates of banks on their rediscounted papers shall not be subject to any ceiling but the spreads of the banks on these papers shall be closely monitored by the BSP to ensure that these are consistent with the prevailing market rates.

Past due BSP loans and unpaid matured notes shall be levied liquidated damages equivalent to five percent per annum. § X269.7  Release of Proceeds.  The proceeds of the rediscounting availment shall be released as follows:

Peso rediscounts - automatically credited to the borrowing bank’s DDA or its depository bank’s DDA with the BSP on the same day for loan application submitted to the BSP before 4:30 pm, during banking days.

Dollar/Yen rediscounts – released through the Treasury Department, BSP, for credit to the designated foreign correspondent bank of the borrowing bank as follows:

(1) Same banking day credit for dollar loan application submitted to the BSP before 11:00 am,  during banking days; and

(2) Following banking day credit for yen loan application submitted to the BSP before 11:00 am, during banking days.

§ X269.8 Repayments/Remittance of Collections/Arrearages. The following shall govern repayments, remittance of collections, and arrearages:

a.    Repayments -

(1)  Peso Rediscounts

i. The loan value of the rediscounted credit instruments or the amortization plus interest due thereon shall automatically be debited against the borrower bank’s DDA with the BSP at maturity/amortization due date.

ii. For microfinance loans, the DDA of the borrower bank shall automatically be debited on the amortization due date for the loan value of the amortization plus interest due thereon.  For loans with  daily, weekly or semi-monthly amortizations, the borrower bank’s DDA shall automatically be debited on the last amortization due date of said month for the total loan value of the amortizations for the month plus interest due thereon.

iii. The loan value of unremitted collections and of the rediscounted credit instruments and/or underlying collaterals found to be missing, ineligible, or with exceptions not corrected within 15 days from receipt of notice plus interest due thereon shall automatically be debited against the borrower bank’s DDA with the BSP.

(2) Dollar/Yen Rediscounts

Dollar and yen loans shall be repaid in the same currency under which they were released.  For this purpose, the bank shall submit online to the BSP its payment instruction one day before the payment date or the maturity date of the loan corresponding to the remittance instruction to its designated correspondent bank.  The payment shall cover total collections or payment of maturing loans plus interest due thereon. In case of short payment, the bank’s DDA with the BSP shall automatically be debited for the peso equivalent of the shortage.

If the foreign currency denominated loans are not settled on maturity date, the borrowing bank’s DDA with the BSP shall automatically be debited for the peso equivalent of the matured obligation plus accrued interest due thereon, using the applicable BSP selling rate for dollar or yen at the date of debit.

b. Remittance of Collections –

(1)  Total collections received by the borrowing bank before the maturity date of the rediscounted credit instruments shall be remitted not later than five banking days following the date of receipt of collections to the following:

Peso Rediscounts

BSP

Dollar Rediscounts

Federal Reserve Bank of New York for the account of BSP

Yen Rediscounts

Bank of Tokyo for the account of BSP

i. “Total collections” shall refer to the loan value of the principal amount collected from rediscounted credit instruments plus accrued interest due on the outstanding balance of subject credit instruments.

ii. For banks with BSP loans under past due status, total collections shall include all collections on principal, interest and penalty.

iii. In the case of negotiated EBs, the receipt by the borrowing bank of payment from its correspondent bank either through actual remittance or credit advice; or through book entries made by the borrowing bank charging its correspondent bank before receipt of advice shall constitute receipt of collection.

(2) The bank shall ensure that adequate records are maintained in its Head Office on the collections made by the branches.

c. Arrearages –

The BSP shall undertake all necessary collection measures allowed by law, such as foreclosure proceedings against banks with past due loans.

§ X269.9 Prohibited Transactions.  The following shall not be allowed without prior approval of the BSP:

Substitution of  rediscounted credit instruments and underlying collateral real properties on outstanding loans with the BSP;

Renewal of rediscounted credit instrument without remitting payment while the loan released against the rediscounted credit instrument is still outstanding with the BSP; and

Acceptance of properties as payment (Dacion En Pago).

§ X269.10  Monitoring and Credit Examination of Borrowing Banks.   The DLC and the RLCD shall conduct an off-site analysis of the BSP’s credit exposure to borrowing banks and a risk-based on-site examination that will focus primarily on determining whether there is a high, moderate or low probability of default on the settlement of the banks’ rediscounting obligations with the BSP.

§ X269.11 Penalties/Sanctions.  The following penalties and sanctions shall be imposed on the erring bank and/or the bank’s authorized/certifying officers.

a. For Serious Offense

Aggregate Amount

PenaltyRange

P50 Kor less

Above P50 KToP100 K

Above P100 KTo  P500 K

AboveP500 KTo  P1 M

AboveP1 M

Minimum

P83

P  250

P 1,000

P 2,500

P 5,000

Maximum

250

750

3,000

7,500

15,000

b. For Less Serious Offense

Aggregate Amount

PenaltyRange

P50 Kor less

Above P50 KToP100 K

Above P100 KTo  P500 K

AboveP500 KTo  P1 M

AboveP1 M

Minimum

P   63

P  188

P 750