Amendments in the Operations of the Bangko Sentral’s Rediscounting Line (RL) and Overdraft Credit Line (OCL) by Banking Institutions

BANGKO SENTRAL NG PILIPINAS ctRcutAR No. 1132 Series of 2O2l OFFICE OF THE GOVERNOR subJect: Amendments in the operations of the Bangko sentral's Rediscounting Line (RLl and Overdraft Credit Line (OCL) by Banking Institutions The Monetary Board (MB), in its Resolution No. l53O dated ll November 20.21, approved the amendments in the operations of Bangko Sentral's RL and OCL by banking institutions, in view of the implementation of the Supervisory Assessment Framework. Section l. Section 281 of the Manual of Regulations for Banks (MORB), as amended by Circular No. IO77 dated 26 February 2O2O, on application for RL is hereby amended to read, as follows: 28I REDISCOUNTING LINE xxx Credit lnformation System. The rediscounting availments of all eligible banks shall be drawn against their rediscounting line which is based on their total credit score under the Credit lnformation System (CRIS). The scoring system under the CRIS shall consider both quantitative and qualitative factors to assess the applicant bank's creditworthiness (e.9., financial indicators and results of Bangko Sentral examination). The CRIS guidelines shall be reviewed on a regular basis by the Bangko Sentral's Credit Committee to maximize its effectiveness in managing the credit risk of the Bangko Sentral. Application Ptwedurcs Banks applying fora rediscounting line shall submit their application in the prescribed form (RL Form No. I ) to the Department of Loans and Credit (DLC), Bangko Sentral-Manila, either in hard copy or electronic form, together with the following documents: a. Secretary's Certificate or Board Resolution duly signed by the Board of Directors of the applicant bank, authorizing the bank to apply br a rediscounting line with the Bangko Sentral and designating at least two (2) officers of the bank to sign and endorse documents pertaining thereto, together with their specimen signatures;

b. Certification dated at most one 0) month prior to date of filing of application signed by any two (2) of the authorized officers per Secretary's Certificate or Board Flesolution: 0) lf the bank has outstanding obligation/s with financial/ending institution/s: certification that it has no past due obligations with all other financial and lending institutions, as enumerated therein; or (21 lf the bank has no outstanding obligation/s with financial/lending institution/s: certification that it has no financial obligation with all other financial and lending institutions; c. Certification of good credit standing prepared and issued by all the financial and lending institutions listed in ltem b(l) above dated at most one 0 ) month prior to the date of apptication for rediscounting line; d. Certification signed by the president or officer of equivalent rank, and Chief Compliance Officer certiffing that the Bank has the following documents which shall be made available, as applicable, when requested by the appropriate DLC personnel: (l ) Articles of Incorporation and amendments, if any; l2l Organizational chart; (3) List of board of directors and principal officers [top three (3) executive officersl and their education/training and work experience; (4) Annual reporVAudited Financial Statements for the immediately preceding !ear; and (5) For banks applying for microfinance facility, a copy of the Manual of Operations pertaining to microfinance operations; and e. lf submitted in electronic form, certification signed by any two (2) of the authorized officers per Secretary's Certificate or Board Resolution that: (i) all electronic copies submitted are a true and faithful copy of the original; (ii) the documents in hard copy format shall be transmitted to the Bangko Sentral-DlC within the prescribed timeline requested; and (iii) the bank acknowledges that any misrepresentation may, at the discretion of BSP, be subjected to appropriate enforcement actions, among other legal recourses available to the Bangko Sentral. ApptovalThenewal of the line. The approval/renewal of rediscounting line shall be subject to the bank's full compliance with the following requirements: a. Minimum capital prescribed under Sec. l2l based on the latest available report of the Department of Supervisory Analytics (DSA) or appropriate supervising department of the Bangko Sentral except those with capital build-up program approved by the Monetary Board; Page2ofT

b. Risk-based capital adequacy ratio (CAR) as required under applicable and existing capital adequacy framework based on the latest available report of the DSA or appropriate supervising department of the Bangko Sentrah Flequired reseryes against deposit liabilities/deposit substitutes for two (2) consecutive weeks based on the latest available report of the DSA or appropriate supervising department of the Bangko Sentrah d. Positive Demand Deposit Account (DDA) balance with the Bangko Sentral; No past due obligations or collateral deficiencies on account of matured notes/unremitted collections/missing collaterals or ineligible papers with the Bangko Sentral; and The ratio of past due direct and indirect loans to DOSRI to the aggregate past due loans should not be more than five percent (5%) based on the latest available report of the DSA or appropriate supervising department of the Bangko Sentral. xxx The approval, disapproval, extension, amendment, cancellation, suspension and restoration of the rediscounting line shall be delegated to the Bangko Sentral's Credit Committee. Banks with approved rediscounting line shall, thereafter, submit the following: a. Flediscounting line agreement (RL Form No. 3) within three (3) months from receipt of notice of approval from the Bangko Sentral, which reseryes the right to re-assess the bank's eligibility at any given time; and b. 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. For newly merged or consolidated banks, a temporary line not exceeding fifty percent (5O7o) of its adjusted capital as of latest date may be granted for a period of l8O days while awaiting the required reports/data from the DSA or appropriate supervising department of the Bangko Sentral, renewable for another l8O days or until such time that the required reports/data are made available, whichever comes earlier, subject to the following conditions:t a. Compliance with the requirements cited under ltems "d" and "e" under this Section on Approval/Renewal of the line, and other guidelines issued by the DLC; and These conditions shall not limit the Monetary Board from granting rediscounting line incentives merged/consolidated banks pursuant to sec. lO4. Page 3 of7

b. Flisk-based CAR as required under applicable and existing capital adequacy framework and minimum capital prescribed under Sec. l2l based on the latest available report of the DSA or appropriate supervising department of the Bangko Sentral except those with capital build-up program approved by the Monetary Board. Banks with disapproved applications may re-apply after three (3) months from its receiptof Bangko Sentral's noticeof disapprovaland upon compliancewith the eligibility requirements for rediscounting line. Amountof 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 25VotolOO%o of adjusted capital. xxx Section 2. Section 282 of the MORB, as amended by Circular Nos. IO72 and lOTl dated 3l and 8 January 2O2O, respectively, is hereby amended to read, as follows: 282 REDISCOUNTING AVAILMENTS xxx Eligible pepens and collaterals. The Bangko Sentral shall accept credit instruments covering alleconomic activities except the following: xxx (41 The trustee must provide Bangko Sentral with a certified copy of the relevant collateral(s). For banks with non-performing loans ratio higher than industry average based on the latest available data from the DSA or appropriate supervising department of the Bangko Sentral at the time of drawdown, only marketable debt instruments issued by the National Government and all its instrumentalities, including Republic of the Philippines US$ denominated bonds or ROPs, shall be accepted. Loanavailmentprocedures. Banks availing of the rediscounting facility shall submit their loan applications electronically to the Bangko Sentral using their eRS registered computers. xxx c. Banks with custodianship agreements shall deposit with their respective depositary/custodian bank the rediscounted credit instruments, xxx. The BSP shall conduct pre-credit verification prior to any drawdown of loans secured by real estate mortgage, for banks with NPL ratio within the industry average based on the latest available data from the DSA or appropriate supervising Department of the Bangko Sentral. xxx Page 4ot7

Section 3. Section 8O2 of the MORB, as amended by Circular No. lO43 dated 2 August 2019, is hereby amended to read, as follows: 8O2 CHECK CLEARING OPERATIONS xxx Check Clearing Rules for Banks Authorized to Accept fumand Deposits.2 xxx (2) A ceiling shall be set on the amount of overdraft a bank may incur due to failure to cover clearing losses through interbank borrowings and/or repurchase agreements with the Bangko Sentral in the amount of the bank's collateralized overdraft credit line (OCL) with the Bangko Sentral. A bank not meeting the following criteria: (a) Minimum capital prescribed under Sec.l2l; xxx (3) Provided the overdraft does not exceed the ceiling as defined in Item 2" hereof, the bank may avail of the collateralized OCL. The availments against the approved collateralized OCL shall bear interest at a rate equivalent to one-tenth of one percent FfiO otlgt) per day or the 9l-day T-Bill rate of the last auction immediately preceding the availment, plus three percentage l3%ol points, whichever is higher. xxx (5) Should the overdraft exceed the ceiling, as defined in ltem 2' hereof, no availment of the collateralized OCL shall be allowed. xxx In indirect participation through conduit arrangement, xxx The cap is defined as the combined value of the following amounts: xxx (2)the value of collateralized overdraft credit line that may be extended by the conduit UB/KB to the TBIRB. xxx 2 See schedule of revised clearing and settlement process shown as footnote of Sec. 2O5. Page 5 of7

Section 4. Appendix 25 of the MORB, as amended by Circular No.lO77 dated 26 February 2O2O, are hereby amended to read, as follows: xxx Sec.2. Ceiling on Overdraft Due to Clearing Losses A ceiling shatl be set on the amount of overdraft a bank may incur due to failure to cover clearing losses through interbank borrowings and/or repurchase agreements with Bangko Sentral in the amount of the bank's collateralized OCL with the Bangko Sentral. A bank not meeting the following criteria: a. Minimum capital prescribed under Sec.l2l; xxx Sec.4. Availments Against the Approved Collateralized OCL a. Provided the overdraft does not exceed the ceiling as defined in Section 2 hereof, the bank may avail of the collateralized OCL. The availment shall be granted the next banking day after taking into account the amount of AM returns, for value the previous banking day. xxx Sec.5. Procedures for Unwinding and Exclusion. Should the overdraft exceed the ceiling as defined in Section 2 hereof, no availment of the collateralized OCL shall be allowed. xxx Sec. 6. Conversion/suspension of Collateralized OCL Banks found to be abusing their collateralized OCL privilege shall be subject to suspension of the OCL. The following shall constitute an abuse of the OCL privilege and shall automatically result in the suspension of the OCL; xxx Section 5. The transitory provision below shall be added as footnote in Section 8O2 and Appendix 25: Existing clean OCL of Banks prior to the effectivity of this Circular shall remain effective until expiration, or upon termination of its equivalent RL, whichever comes first. Page 6 of7

rt Scctlon 6. This Circular shall take eftct on 20 December 2O2t after its publication either in the Official Gazette or In a newspaper of general circulation. FOR THE MONETARY BOARD C C q. BENTAilIl{ E DPI${O Governor l1 aecember 2o2I PrgoT of 7