Revised Manual of Rules and Regulations Governing Non-Trade Foreign Exchange Transactions - Chapters VI - X

CBP CIRCULAR NO. 1318 Series of 1992

REVISED MANUAL OF RULES AND REGULATIONS GOVERNING NON-TRADE FOREIGN EXCHANGE TRANSACTIONS

Pursuant to Resolution No. 1323 dated December 4, 1991 and Resolution No. 1415 dated January 3, 1992, the Monetary Board hereby adopts and promulgates the following rules and regulations governing non-trade foreign exchange transactions:

Chapters I to V

CHAPTER VI

Representative Offices of Foreign Banks

SECTION 65. Definition of Terms. — As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise:

"Foreign Bank" shall refer to a bank or banking corporation formed, organized and existing under any foreign law.

"Representative Office" shall refer to a liaison office of a foreign bank which deals directly with the public by promoting and giving information about the foreign bank's services offered. It does not include the regional or area headquarters of a foreign bank registered and licensed under existing laws.

SECTION 66. Criteria for Approval. — The Monetary Board may authorize qualified foreign banks to open representative offices in the Philippines if, in its judgment, the public interest and economic conditions, both general and local, justify the establishment of such office. The following factors, among others, shall serve as basis for issuance of authority to open a representative office in the Philippines: (a) liquidity and solvency positions; (b) net worth and resources base; (c) financial and credit standing in the international banking community; (d) exposure in the Philippines; and (e) other relevant factors, such as Philippine commercial and financial relationships with the country where applicant bank is based.

SECTION 67. Authorized Activities of Representative Offices. — Authorized representative offices may promote and provide information about the services/products offered by the foreign banks but may not transact banking business, such as acceptance of deposits, issuance of letters of credit and foreign exchange trading. Transactions generated through the promotional efforts of the representative office may be booked only by the foreign bank abroad.

SECTION 68. Fees. — Banks with representative offices to be established after the effectivity of this Circular shall, upon issuance by the Central Bank of a Certificate of Authority, pay the Central Bank a license fee of US$2,000.00.

SECTION 69. Use of the term "Representative Office". — Foreign banks authorized to operate representative offices shall, in their representation with the public, carry with their name the additional term "Representative Office" to properly guide the public on the nature and extent of their activities.

SECTION 70. Licensing. — The licensing and operations of representative offices including the implementation of these regulations and such other rules and regulations that may be issued from time to time shall be the responsibility of FERD.

SECTION 71. Visitorial Power. — The Central Bank may, from time to time, look into the affairs of the representative offices if the Central Bank has reasonable ground to believe that these offices are in fact engaged in banking activities in violation of the terms and conditions of the license.

SECTION 72. Reporting. — Representative Offices shall submit to FERD, annual reports of their Head Office and, periodically as may be required, reports on the transactions of their Head Office in the Philippines in such form as may be prescribed for the purpose.

SECTION 73. Revocation of License. — The Monetary Board may revoke the license of a representative office if it finds after due investigation that: (a) the representative office or its officers have violated the provisions of this Circular and any other applicable rules and regulations of the Central Bank of the Philippines; or (b) its Head Office is found to be in imminent danger of insolvency or that its continuance in business will involve probable loss to those transacting business with it, pursuant to Section 16 of R.A. 337, as amended.

CHAPTER VII

Foreign Currency Deposit System

SECTION 74. Definition of Terms. — As used in this Chapter, the following terms shall have the meaning indicated unless the context clearly indicates otherwise:

"Foreign Currency Deposit Unit" or "FCDU" shall refer to that unit of a local bank or a of a local branch of a foreign bank authorized by the Central Bank to engage in foreign currency-denominated transactions, pursuant to the provisions of R.A. 6426, as amended. ("Local bank" shall refer to a thrift bank or a commercial bank organized under the laws of the Republic of the Philippines. "Local branch of a foreign bank" shall refer to a branch of a foreign bank doing business in the Philippines, pursuant to the provisions of R.A. No. 337, as amended);

"Short-term" loans and securities shall refer to credit accommodations with maturities of one year or less;

"Long-term" loans and securities shall refer to credit accommodations with maturities of more than one year.

The definition of such other terms used in this Chapter shall be consistent with the definition of terms used under the Chapter on Offshore Banking System.

SECTION 75. Qualification Requirements.

Only commercial banks can be authorized to function under the expanded foreign currency deposit system, pursuant to the provisions of R.A. 6426, as amended, provided, that they meet the following minimum qualifications:

1. Its networth or combined capital accounts is at least equal to the minimum capital requirement for commercial banks as may be prescribed by the Monetary Board from time to time. Networth or combined capital accounts as used herein shall refer to the total of unimpaired paid-in capital, surplus, and undivided profits, net of such valuation reserves and other capital adjustments as may be required by Central Bank; 2. It has shown profitable operations for a period of two (2) consecutive business years immediately preceding the date of application. Its profitability, solvency, and liquidity ratios must be satisfactory; 3. It has substantially complied with applicable laws and existing Central Bank rules and regulations; 4. Bank officers shall have at least two (2) years of actual experience in foreign exchange operations or related activities or have undergone training in foreign exchange operations acceptable to the Central Bank.

In addition to commercial banks which are already operating as FCDUs, thrift banks may apply with the Central Bank for a certificate of authority to operate an FCDU, provided that they meet the following minimum qualifications:

1. Its networth or combined capital accounts is at least P50 million; 2. It has shown profitable operations for a period of two (2) consecutive business years immediately preceding the date of application. Additionally, its profitability, solvency, and liquidity ratios, must be at par or above the thrift banking industry averages during such preceding two (2) business years; 3. It has substantially complied with applicable laws and existing Central Bank rules and regulations; 4. Bank officers shall have at least two (2) years of actual experience in foreign exchange operations or related activities or have undergone training in foreign exchange operations acceptable to the Central Bank.

SECTION 76. Authorized Transactions.

Thrift banks which are granted a certificate of authority to operate an FCDU are authorized to engage in the following transactions in any acceptable foreign currency:

1. Accept deposits and trusts accounts (for banks authorized to engage in trust operations) from residents and non-residents, provided that deposits and trust accounts from residents shall not include foreign exchange required to be sold for pesos under Section 1 of this Circular; 2. Deposit, on short-term maturity, with foreign banks abroad, OBUs, and other FCDUs; 3. Invest in foreign currency-denominated debt instruments, which are of short-term maturity and are readily marketable; 4. Grant short-term foreign currency loans to domestic enterprises, which are export-oriented, in accordance with CB regulations and/or those registered with the Board of Investments under the provisions of the Export, Incentive Act (R.A. 6135); 5. Borrow, on short-term maturity, from other FCDUs; and from foreign banks abroad and OBUs, subject to existing rules on foreign borrowings; 6. Engage in foreign currency-foreign currency swap with the Central Bank, OBUs, and other FCDUs.

Commercial banks, which are authorized to operate under the expanded foreign currency deposit system under Section 75 hereof, may engage in the following transactions in any acceptable foreign currency:

1. Accept deposits and trust accounts from residents and non-residents, provided that deposits and trust accounts from residents shall not include foreign exchange required to be sold for pesos under Section 1 of this Circular; 2. Deposit with foreign banks abroad, OBUs and other FCDUs; 3. Invest in foreign currency-denominated debt instruments; 4. Subject to Central Bank prior approval when required by Central Bank regulations, extend foreign currency loans to any domestic enterprises without the limitations prescribed in the first paragraph of Section 4 of R.A. 6426, as amended by P. D. 1035 regarding maturity and marketability; 5. Borrow from other FCDUs; and from non-residents and OBUs, subject to existing rules on foreign borrowings; 6. Engage in foreign currency-foreign currency swap with the Central Bank, other FCDUs, and OBUs; 7. Engage in foreign exchange trading; and with prior Central Bank approval, engage in financial futures and options trading; 8. On request/instructions of its foreign correspondent bank, it may:

i) issue letters of credit for a non-resident importer in favor of a non-resident exporter; ii) pay, accept, or negotiate drafts/bills of exchange drawn under the letter of credit; iii) make payment to the order of the non-resident exporter.

Provided, that the foreign correspondent bank shall deposit sufficient foreign exchange with the FCDU issuing the letter of credit to cover all drawings.

SECTION 77. Foreign Currency Cover Requirements. — FCDUs shall maintain at all times, a one hundred percent (100%) cover for their foreign currency liabilities. For purposes of complying with this requirement, the principal offices in the Philippines of the authorized banks and all its branches located therein shall be considered as a single unit. The foreign currency cover shall consist of the following:

For Thrift Banks —

1. Foreign currency deposits with the Central Bank; 2. Foreign currency deposits of short-term maturity, with foreign banks abroad, OBUs, and other FCDUs; 3. Short-term foreign currency loans, except those classified by the Central Bank as bad or uncollectible debts; 4. Investments in foreign currency-denominated debt instruments, which are of short-term maturities and are readily marketable; 5. Foreign currency notes and coins on hand; 6. Foreign currency swapped with the Central Bank, OBUs and other FCDUs; 7. Foreign currency interests receivable; 8. Such other assets, as may be determined by the Monetary Board as eligible cover.

Commercial Banks — in addition to the above, the following shall also be considered as eligible asset cover:

1. Foreign currency loans maturing beyond one (1) year, except those classified by the Central Bank as bad or uncollectible debts; 2. Investments in foreign currency-denominated debt instruments, irrespective of maturity. For purposes of this Section, only real accounts shall qualify as eligible asset cover.

SECTION 78. Foreign Currency Deposit with the Central Bank. — FCDUs of thrift banks shall maintain at all times foreign currency deposits with the Central Bank equivalent to at least fifteen percent (15%) of their foreign currency deposit liabilities. The Central Bank may pay interest on the foreign currency deposit and if requested shall exchange the foreign currency notes and coins into foreign currency instruments drawn on its depository banks.

FCDUs of commercial banks shall be exempt from maintaining fifteen percent (15%) of the cover in the form of foreign currency deposit with the Central Bank.

SECTION 79. Currency Composition of the Cover. — FCDUs of thrift banks shall maintain the foreign currency cover in the same currency as that of the corresponding foreign currency deposit liability. FCDUs of commercial banks shall maintain not less than seventy percent (70%) of the foreign currency cover in the same currency liability and thirty percent (30%) or less, at the option of the FCDU, may be denominated in other acceptable foreign currencies.

SECTION 80. Secrecy of Deposits. — Pursuant to R.A. No. 6426, as amended, all foreign currency deposits are declared and considered of an absolutely confidential nature and, except upon the written permission of the depositor, in no instance shall such foreign currency deposits be examined, inquired or looked into by any person, government official, bureau or office whether judicial, administrative or legislative, or any other entity whether public or private.

SECTION 81. Numbered Accounts. — Authorized banks may adopt a numbered account system.

SECTION 82. Withdrawability and Transferability of Deposits. — There shall be no restrictions on the withdrawal by the depositor of his deposit or on the transferability of the same abroad except those arising from the contract between the depositor and the bank.

SECTION 83. Insurance Coverage. — Foreign currency deposits shall be insured under the provisions of R.A. No. 3591, as amended. Depositors are entitled to receive payment in the same currency in which the insured deposits are denominated.

SECTION 84. Rates of Interest. — Authorized banks are free to pay any rate of interest on foreign currency deposits.

SECTION 85. Eligibility as Collateral. — Deposits under the Foreign Currency Deposit System are eligible as collateral for peso loans or for foreign currency loans to domestic enterprises.

SECTION 86. Taxes. — All foreign currency deposits made under this Chapter, including interest and all other income or earnings of such deposits, are exempt from any and all taxes whatsoever irrespective of whether or not these deposits are made by residents or non-residents so long as the deposits are eligible or allowed under aforementioned laws and in the case of non-residents, irrespective of whether or not they are engaged in trade or business in the Philippines.

The transactions of FCDUs shall, however, be subject to such taxes as are provided by law and regulations of the Bureau of Internal Revenue.

SECTION 87. Exemption from Court Order or Process. — Foreign currency deposits shall be exempt from attachment, garnishment, or any other order or process of any court, legislative body, government agency or any administrative body whatsoever.

SECTION 88. Inapplicability of Certain Laws. — The provisions of R.A. No. 529 (Uniform Currency Law) as amended, and R. A. No. 2655 (Usury Law) as amended, shall not apply to banks in respect to their foreign currency transactions under this Chapter.

SECTION 89. Accounting. — The foreign currency deposits and their corresponding cover shall be considered as funds separate and distinct from the regular assets and liabilities of the authorized banks. Authorized banks shall maintain a separate accounting for transactions covered by this Chapter that will enable preparation of the Balance Sheet and Profit and Loss Statement covering said funds.

Periodically or as required, existing reports shall continue to be submitted in the prescribed forms to FERD of the Central Bank of the Philippines.

SECTION 90. Supervision. — The Governor or the head of the appropriate department of the Central Bank personally, or by deputies, are authorized to verify the books of account and transactions of each authorized bank, to verify the eligible cover, as well as review all other requirements under these regulations and the bank's compliance with the provisions of law and these regulations.

SECTION 91. Prospective Effect of Regulations. — In the event a new enactment or regulation is issued decreasing the rights hereunder granted, such new enactment or regulation shall not apply to foreign currency deposits already made or existing at the time of issuance of such new enactment or regulation, but such new enactment or regulation shall apply only to foreign currency deposits made after its issuance.

SECTION 92. Sanctions. — Any willful violation of R. A. 6426, as amended, or any regulation duly promulgated by the Monetary Board pursuant thereto shall subject the offender upon conviction to an imprisonment of not less than one year nor more than five (5) years or a fine of not less than five thousand pesos nor more than twenty-five thousand pesos, or both such fine and imprisonment at the discretion of the court.

The Central Bank may revoke or suspend the authority of a bank to accept new foreign currency deposit for violation of R.A. No. 6426 or these regulations, or if such bank ceases to possess the minimum qualifications required.

CHAPTER VIII

Fiscal Agency Service

SECTION 93. Responsibility as Fiscal Agent. — The Central Bank, in compliance with the provisions of Article 1 Chapter V of R.A. 265, as amended, shall act as fiscal agent and banker when requested by the Government for its foreign exchange transactions.

For this purpose, Government shall refer to the national government, its political subdivisions and instrumentalities, including government-owned and controlled corporations (GOCCs).

SECTION 94. Functions and Services. — Subject to the usual auditing requirements, the Central Bank thru the Foreign Exchange Operations and Investments Department (FEOID), shall perform the specific fiscal agency service (FAS) functions when requested by the Government, to wit:

Directly service the foreign exchange requirements of the Government;

Engage the services of AABs to service such foreign exchange requirements in accordance with existing Central Bank policy, rules and regulations;

Administer the fiscal agency funds (FAF) of the Government for the account of the Treasurer of the Philippines (TOP), as follows:

i) peso working fund deposited with the Central Bank under the "Demand Deposit-Others (FAF)" account; and ii) US dollar working fund deposited with various PNB overseas branches and other depository banks abroad;

Execute fund transfers from above accounts to other accounts upon order of TOP; and

Perform such other functions as may be duly authorized by TOP.

SECTION 95. Fiscal Agency Transactions.

Except as provided in this Chapter, the pertinent provisions of Chapter II of this Circular, entitled "GENERAL RULES ON FOREIGN EXCHANGE DISBURSEMENT AND TRANSFERS OF LOCAL AND FOREIGN CURRENCIES", shall be applicable to Government transactions involving invisible payments/remittances;

AABs may sell to the Government foreign exchange for salaries/allowances and operating expenses of overseas-personnel/offices up to a maximum of US$5,000.00 per beneficiary, per month;

Importations by government agencies/offices shall be governed by the pertinent provisions of Central Bank Circular No. 1029 dated October 12, 1984, as amended (CONSOLIDATED RULES AND REGULATIONS TO GOVERN IMPORT TRANSACTIONS).

SECTION 96. Transactions Financed by the Government's Own Foreign Exchange Resources. — The foreign exchange disbursements provided under Section 95 above may however be directly settled by the Government without availing of the FAS and/or prior Central Bank approval, if the corresponding foreign exchange to service such obligations is not sourced from the Central Bank or the AABs.

SECTION 97. Settlement of Fiscal Agency Service Transactions.

In cases where the foreign exchange is sold by the Central Bank and TOP provides the corre…