Credit Limits for Project Finance Exposures

BANeKo SeNrn.aL No PrlrplNas OFFICE OF THE GOVERNOR ctRculAR NO.1001 Series of 2018 Subject: Credit Limits for Proiect Finance Exposures The Monetary Board, in its Resolution No. 662 dated L9 April 20L8, approved the amendments to the relevant provisions of the Manual of Regulations for Banks (MORB)/Manual of Regulations for Non-Bank Financial Institutions (MORNBFI)to provide the credit limits that shall be applied to project finance exposures of banks/quasi-banks (Qes1. Section 1. Sections X303/4303Qof the MORB/MORNBFI are hereby amended to read as follows: "Sec. X303 Credit Exposure Limits to a Single Borrower. a. Consistent with national interest, the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity shall at no time exceed twenty five percent (25%) of the net worth of such bank. xxx. b. The total amount of loans, credit accommodations and guarantees prescribed in the first paragraph may be increased for each of the following circumstances: c. The above prescribed ceilings shall include: xxx. d. Even if a parent corporation, partnership, association, entity or an individual who owns or controls a majority interest in such entities has no liability to the bank, the liabilities of subsidiary corporations or members of the partnership, association, entity or such individual shall be combined under certain circumstances, including but not limited to any of the following situations: xxx. e. Loans, credit accommodations, and guarantees granted by a bank to an entity (often a special purpose entity or SPE) for the purpose of project finance as defined under Subsec. X330.2 shall be subject to a separate individual limit of twenty-five percent (25%l of the net worth of the lending bank: Provided, That such project finance loans are for the purpose of undertaking initiatives that are in line with the priority programs and projects of the government: Provided, further, That the lending bank shall ensure that the standard prudential controls in project finance loans designed to safeguard creditors' interests are in place, which may include pledge of a borrower's shares, assignment of the borrower's assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents: Provided, finally, A. Mabini St., Malate 1004 Manila, Philippines t {632)7OB-77O1 . www.bsp.gov.ph , [email protected]

That the lending bank shall consider its total project finance exposures in complying with Subsections X301.6 and XL78.9 on the guidelines in managing large exposures and credit risk concentrations. f . The wholesale lending xxx. xxx." "Sec. 4303q (2008 - 4306Q1 Loan Limit to a Single Borrower. The total liabilities of any person, company, corporation or firm, to a QB for money borrowed shall at no time exceed twenty-five percent (25%l of the combined capital accounts as defined in Sec.4111Q. XXX For purposes of this Section, the term liabilities shall mean the direct liability of the maker or acceptor of paper discounted with or sold to such QB xxx. The total liabilities of an entity (often a special purpose entity or SPE) for the purpose of project finance as defined under Subsec. 4330Q.1 shall be subject to a separate individual limit of twenty-five percent (25%l of the combined capital accounts of a QB: Provided, That such project finance loans are for the purpose of undertaking initiatives that are in line with the priority programs and projects of the government; Provided, further, That the QB shall ensure that the standard prudential controls in project finance loans designed to safeguard creditors' interests are in place, which may include pledge of a borrower's shares, assignment of the borrower's assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents: Provided, finolly, That the QB shall consider its total project finance exposures in complying with Subsections 430i.Q.6 and 4i.78Q.9 on the guidelines in managing large exposures and credit risk concentrations. Loans, credit accommodations and guarantees to any person, partnership, association, corporation or other entity or group of companies in excess of the applicable SBL arising from acquisition, merger or consolidation xxx. XXX.,, Section 2. Subsection X328.5/4328Q.5 of the MORB/MORNBFI are hereby amended to read as follows: "Subsec. X328.5 Loons, other credit accommodations ond guarontees granted to subsidiories and/or ofiiliotes. a. Ceilings. The total outstanding loans, other credit accommodations and guarantees to each of the bank's subsidiaries and affiliates shall not exceed ten percent (LOo/o) of the net worth of the lending bank: xxx.

Loans, other credit accommodations and guarantees granted by a bank to an entity (often a special purpose entity or SPE) that is a subsidiary or affiliate of that bank for the purpose of project finance as defined under Subsec. X330.2 shall be subject to a separate individual limit of twenty-five percent (25%l of the net worth of the lending bank, subject to the following conditions: (1) That the unsecured portion thereof shall not exceed twelve and one-half percent (12.5%l of such net worth when the project is already operational; (2) That such project finance loans are for the purpose of undertaking initiatives that are in line with the priority programs and projects of the governmen! (3) That the lending bank shall ensure that the siandard prudential controls in project finance loans designed to safeguard creditors' interests are in place, which may include pledge of a borrower's shares, assignment of the borrower's assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents; (4) That the lending bank shall consider its total project finance exposures in complying with Subsections X301.6 and X178.9 on the guidelines in managing large exposures and credit risk concentrations; (5) That the subsidiary or affiliate is not a related interest of any of the director, officer, and/or stockholder of the lending bank; and (6) That the total outstanding loans, other credit accommodations and guarantees to all subsidiaries and affiliates shall be subject to the aggregate limits for related party transactions. b. Exclusions from the ceilings. xxx. c. Procedural requirements. xxx." "Subsec. 4328Q.5 (2008 - 4328Q1 Loons, other credit accommodations ond guorantees gronted to subsidiaries ond/or affiliates. a. Ceilings. The total outstanding loans, other credit accommodations and guarantees to each of the QB's subsidiaries and affiliates shall not exceed ten percent (!0o/ol of the net worth of the lending QB: xxx. Loans, other credit accommodations and guarantees granted by a QB to an entity (often a special purpose entity or SPE) that is a subsidiary or affiliate of that QB for the purpose of project finance as defined under Subsec. 4330Q.1 shall be subject to a separate individual limit of twenty-five percent (25%l of the net worth of the lending QB, subject to the following conditions: (1) That the unsecured portion thereof shall not exceed twelve and one-half percent lL2.So/o) of such net worth when the project is already operational;

(2) That such project finance loans are for the purpose of undertaking initiatives that are in line with the priority programs and projects of the governmen| (3) That the QB shall ensure that the standard prudential controls in project finance loans designed to safeguard creditors' interests are in place, which may include pledge of a borrower's shares, assignment of the borrower's assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents,' (4) That the QB shall consider its total project finance exposures in complying with Subsections 4301Q.6 and 4178Q.9 on the guidelines in managing large exposures and credit risk concentrations; and (5) That the subsidiary or affiliate is not a related interest of any of the director, officer, and/or stockholder of the lending QB. b. Exclusions from the ceilings. xxx. c. Procedurol requirements. xxx." Section 3. Subsection X303.4 of the MORB on "Exclusions from loan limit" is hereby amended to: (1) insert as ltem "a. credit exposures considered as non-risk', which was previously presented as ltem "e" of Section X303 of the MORB; (2) renumber the existing enumerations from ltems "ato g" to "b to h"; and (3)transfer existing ltem "h" to ltem "a.(61". Subsection X303.4 of the MORB shall now read as follows: "Subsec. X303.4 Exclusions from loon limit. The following loans, other credit accommodations, and guarantees shall be excluded in determining compliance with the SBL: a. Credit exposures considered as non-risk: (1) loans and other credit accommodations secured by obligations of xxx; (2) loans and other credit accommodations fully guaranteed by xxx; (3) loans and other credit accommodations secured by U.S. Treasury Notes xxx; (4) loans and other credit accommodations to the extent covered by the hold-out on or assignment of, deposits xxx. (5) loans, credit accommodations and acceptances under letters of credit xxx; (6) loans granted to foreign embassies. These loans are considered as loans to their respective central governments and as such shall be considered non-risk; and (7) other loans or credit accommodations which the Monetary Board may xxx;

ll b. The discount of bills of exchange drawn in good faith xxx; h. Loans and other credit accommodations as a result of an underwriting xxx; i. Foreign securities lending under Sec. X53L xxx.; and XXX XXX XXX.,, Section 4. Subsec. 4303Q.1of the MORNBFI on "Exclusions from loan limit" is hereby amended to (1) insert as ltem "a" credit exposures considered as non-risk, which was previously presented in the first paragraph of Section 4303Q of the MORNBFI, and (2) renumber the existing enumerations from ltems "a to d" to "b to e". Subsection 4303Q.1 shall now read as follows: "Subsec. 4303Q.1 (2008 - 4306Q.1) Exclusions from loan limit.The following shall be excluded in determining compliance with the SBL: a. Credit exposures considered as non-risk: (1) loans and other credit accommodations secured by obligations of xxx; (2) loans fully guaranteed by the government as to xxx; (3) loans fully secured by US Treasury Notes xxx; (4) loans to the extent covered by the holdout on xxx; (5) loans and acceptances under letters of credit xxx; and (6) other loans or credits which the Monetary Board may xxx; b. The total liabilities of a commercial paper issuer for commercial xxx; XXX XXX XXX.,, Section 5. Effectivity. This Circular shall take effect fifteen (L5) calendar days following its publication either in the Official Gazette or in a newspaper of general circulation. FOR THE MONETARY BOARD: Governor ?O April 2018