Currency Rate Risk Protection Program

CIRCULAR NO. 261 Series of 2000

The Monetary Board, in its Resolution No. 1716 dated October 4, 2000 approved the expansion of the coverage of the Currency Rate Risk Protection Program (the “CRPP Facility”) otherwise known as the Non-Deliverable Forward (NDF) Facility under Circular No. 149 dated December 22, 1997, as amended.

Section 1. The CRPP Facility

The CRPP Facility is a non-deliverable forward contract (NDF) between the BSP and the universal/commercial bank with the foreign exchange obligations of bank clients as the underlying transaction.

Under the CRPP Facility, a US Dollar-Philippine Peso forward foreign exchange contract is entered into whereby the parties agree that instead of the actual delivery of the contracted amount, only the net difference between the contracted forward rate and the prevailing spot rate shall be settled in pesos at maturity of the contract. Should the eligible obligation be denominated in a foreign currency other than the US dollar, the CRPP contract shall be denominated in their US dollar equivalent. For the purpose of availing of the CRPP Facility, the Bank and its customer shall certify that the availment is being made to hedge a foreign exchange requirement under the guidelines set forth in this Circular.

Universal and commercial banks, including those without derivatives license, may avail of the CRPP Facility for the specific purpose of hedging the foreign exchange obligations of their clients.

Section 2.  Coverage

Eligible obligations under the CRPP Facility shall refer to Fully Unhedged and without natural hedge foreign exchange (FX) obligations, in amounts not less than US$ 50,000.00, which are current and booked as of September 30, 2000 and outstanding as of the date of the application. Past due foreign exchange obligations are not eligible. The following are the eligible FX obligations:

a)   Short term FCDU loans (with original maturities of up to one (1) year), that are duly registered with BSP-International Operations Department (IOD);

b) US dollar Trust Receipts;

c)    Foreign Currency Import Bills/Customers’ Liabilities Under Acceptances (CLA); and

d)    DA/OA (for oil companies only).

Foreign exchange obligations of exporters falling under (a) to (c) above shall be eligible provided that the exporter shows proof that upon application with the universal/commercial bank, he sells foreign exchange for pesos to the bank in an amount at least equal to the amount applied for under the facility. The sale of foreign exchange should be supported by a bank credit advice, or a document evidencing the sale of foreign exchange duly certified by a bank officer with the rank of Senior Vice President or its equivalent and by the bank’s Compliance Officer.

For this purpose, unhedged obligations are those without outstanding hedge either thru forward contracts, options, or matched foreign currency deposits securing said obligation. Obligations with natural hedge, such as those of exporters (except those which qualify under the preceding paragraph) and companies with Currency Exchange Rate Adjustments (CERA), i.e., public utilities, are not eligible. Partially hedged FX obligations shall be evaluated on a case to case basis.

Foreign exchange obligations incurred after September 30, 2000, including renewed obligations, which are eligible under the provisions of this Circular, may be considered on a case-to-case basis. In cases wherein the maturity of the foreign exchange obligation is extended, a new application is required and the original CRPP availment shall be settled. Only one extension of the CRPP contract shall be considered provided the original term plus the extended term shall not exceed one year.

Renewal of obligations eligible for the CRPP Facility shall continue to be so qualified provided that the applicant commercial bank shall certify that the obligation applied for is not a new one but is the same eligible obligation previously granted access to the CRPP Facility. The amount of the renewed obligation may be less but in no case more than the original amount.

Section 3.  Terms and Conditions The terms and conditions of the CRPP Facility are set forth in the implementing guidelines under Annex I hereto. Section 4.  Reporting Requirements

1.   A list of eligible foreign exchange obligations outstanding as of September 30, 2000, shall be submitted to the BSP-DCB-I/DCB-II in the prescribed format (Annexes 2A – 2C); and

2.   Daily reports on executed/preterminated CRPP transactions shall be submitted by the bank to the BSP-DCB-I/DCB-II in the prescribed format (Annexes 3 and 3A) not later than 4:30 P.M. of the following banking day.

These reports shall be signed jointly under oath by the bank’s authorized signatory who shall at least be a Senior Vice President or his equivalent and by the Compliance Officer. Said reports shall be considered Category A -1 for purposes of imposing monetary penalties on delayed/erroneous reports as prescribed in the Manual of Regulations for Banks.

Section 5.  Sanctions

Foreign exchange obligations subject of the CRPP contract when found to be ineligible under this Circular shall automatically render the CRPP contract cancelled, and the concerned Bank shall be liable to pay monetary penalty of P30,000.00 per day covering the period from the  date the application  was filed up to the date the  CRPP contract was cancelled.  In addition, the net differential shall be settled in pesos subject to the rules on pretermination under Annex I using the prevailing spot rate on the date of cancellation of the CRPP contract.

Section 6. Repealing Clause

This Circular supersedes Circular Nos. 149, 150 and 151 and all related Circulars inconsistent herewith.

Section 7. Effectivity

This Circular shall take effect immediately.

FOR THE MONETARY BOARD:

RAFAEL B. BUENAVENTURA Governor