Amendments to Circular No. 108 dated 9 May 1996 to monitor transactions involving reverse repurchase agreements with the BSP, taxable and tax-exempt deposit liabilities and foreign borrowings

CIRCULAR LETTER Series of 2001

TO   : ALL UNIVERSAL AND COMMERCIAL BANKS

The following amendments to Circular No. 108 dated May 9, 1996, as amended, shall be adopted in order to properly monitor the following:

Transactions involving reverse repurchase agreements with the Bangko Sentral ng Pilipinas (BSP);

Taxable and tax-exempt deposit liabilities; and

Foreign borrowings in terms of who shoulders the exchange risk.

A.  Reverse Repurchase Agreements (REPO) with the BSP

When a commercial bank sells an outstanding reverse REPO agreement with the BSP to a client, the securities under REPO support two loan transactions – the bank’s claim on the BSP under the original REPO and the client’s claim on the bank under the new REPO. The bank’s claim on the BSP arising from the reverse REPO should not be offset against its loan payable to clients in the subsequent sale of the REPO because the counterparties to the two transactions are different. Thus, the bank’s reverse REPO transaction with the BSP shall remain to be recorded as its claim on the BSP while the bank’s payable to clients arising from the subsequent sale of the reverse REPO shall be recorded as “Reverse Repurchase Agreements with BSP Sold to Clients” under “Bills Payable – Others”. The pro-forma accounting entries are shown in Annex G.

B.  Tax-exempt Deposit Liabilities

Banks shall record separately deposit accounts of individuals which are tax-exempt under RA No. 8424 (Tax Reform Act of 1997) and deposit accounts of foundations, charitable institutions, provident funds, pension funds and government agencies which are qualified to be tax – exempt under existing laws.

Banks shall also record separately the interest expense on these deposits.

C.  Foreign  Borrowings

Banks shall classify foreign borrowings into:  (a) with the foreign exchange risk to be shouldered by the bank; and (b)  with the foreign exchange risk not to be shouldered by the bank.

Accordingly,  the following amendments of Circular No. 108 dated May 9, 1996, as amended, shall be adopted:

A.     Consolidated Statement of Condition (CSOC)

Main Report – Annexes A and A - 1

Schedule 7 – Annex B

B.  Consolidated Statement of Income and Expenses and Surplus (Free) – Annex C

C.  Circular No. 108 dated May 9, 1996, as amended, shall be adopted:

Manual of Accounts – Annex D

General Ledger (GL) Template –  Annex E

Subsidiary Ledgers (SL) a.   Deposit Liabilities Subsidiary Ledger (SL) – Data Structure – Annex F b.   Bills Payable Subsidiary Ledger (SL) – Data Structure - Annexes  F - 1 and F - 2.

This Circular  Letter shall take effect immediately.

ALBERTO V. REYES Deputy Governor