ADDITIONAL REGULATIONS ON RESTRUCTURED LOANS

The Monetary Board, in its Resolution No. 706 dated May 5, 2000,
approved the following amendments to Circular No. 202 dated May 27,
1999:

Section 2 of Circular No. 202 is hereby amended to read as follows:

“SECTION 2.     Additional Regulations on Restructured Loans. — The following additional regulations on restructured loans are hereby issued:

a.         In the restructuring process, the bank shall encourage
the borrower to improve the quality of the loan either by strengthening
financial capacity or providing additional collateral.

b.         The real estate security and/or other first class
collaterals offered shall be appraised at the time of restructuring to
ensure that current market values are being used. Real estate security
shall be appraised by an independent appraisal company acceptable to the
BSP and shall be reappraised every year thereafter.

i.        For commercial banks, a loan benchmark is set at P5
million, such that loans beyond this amount will require an independent
appraisal company: Provided, that the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the commercial bank.

ii.       For thrift banks, the loan benchmark is set at P1
million such that loans beyond this amount will require an independent
appraisal company: Provided, that the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the thrift bank.

A thrift bank may be allowed to use a commercial bank or another thrift bank acceptable to the BSP to do the appraisal for it: Provided,
the thrift bank requesting the appraisal is not a subsidiary or
affiliate of the commercial bank/other thrift bank contracted to do the
appraisal.

iii.      For rural banks, the benchmark is set at P500 thousand
such that loans beyond this amount will require an independent appraisal
company: Provided, that the appraisal company contracted to do the appraisal is not a subsidiary or an affiliate of the rural bank.

A rural bank may be allowed to use a commercial bank or a thrift bank acceptable to the BSP to do the appraisal for it: Provided,
the rural bank requesting the appraisal is not a subsidiary or
affiliate of the commercial bank/thrift bank contracted to do the
appraisal.

c.         A loan which is restructured shall be considered
non-performing except when the loan is current and performing (i.e.,
with updated principal and interest payments) on the date of
restructuring, in which case, the loan shall retain its performing
status.

The classification of a loan prior to restructuring, e.g., “Loans
Especially Mentioned”, “Substandard” or “Doubtful”, shall be retained: Provided,
that a loan that is not classified but which is non-performing prior to
restructuring shall be classified, at least, “Loans Especially
Mentioned”: Provided further, that restructured loans with capitalized interest shall be classified, at least, “Substandard”.

d.         The restoration to a performing loan status and/or the
upgrading of loan classification, e.g., from “Substandard” to “Loans
Especially Mentioned”, if circumstances warrant an upgrading in
accordance with the criteria under Appendix 18 of the Manual of
Regulations for Banks (MOR), shall only be effective after a
satisfactory track record of payments of the required amortization of
principal and/or interest has been established.

For this purpose, a satisfactory track record of payments of
principal and/or interest shall mean three (3) consecutive payments of
the required amortization of principal and/or interest have been made.
However, in the case of a restructured loan with capitalized interest
but not fully secured by real estate with loan value of up to 60% of the
appraised value of the real estate security and the insured
improvements thereon or other first class collaterals, six (6)
consecutive payments of the required amortization of principal and/or
interest must have been made.

e.         A restructured loan which has been restored to a
performing loan status shall be immediately considered non-performing in
case of default of any principal or interest payment; however, it shall
be considered past due in accordance with existing rules and
regulations [Section X306 of the MOR, as amended by Circulars No. 143
dated October 1, 1997 and No. 202 dated May 27, 1999]

f.          A second restructuring of a loan shall be allowed only if there are reasonable justifications: Provided,
it shall be considered a non-performing loan and classified, at least,
“Substandard”. The restoration to a performing loan status and/or the
upgrading of loan classification, e.g., from “Substandard” to “Loans
Especially Mentioned”, if circumstances warrant an upgrading in
accordance with the criteria under Appendix 18 of the MOR, shall only be
effective after a satisfactory track record of at least six (6)
consecutive payments of the required amortization of principal and/or
interest has been established.”

This Circular shall take effect immediately.

Adopted: 1 June 2000

(SGD.) RAFAEL B. BUENAVENTURA
Governor