REVERSE REPURCHASE AGREEMENTS (REPO) WITH THE BANGKO SENTRAL NG PILIPINAS SOLD TO CLIENTS

When an IH/FC sells an outstanding
reverse REPO agreement with the BSP to a client, the securities under
REPO support two loan transactions — the IH/FC’s claim on the BSP under
the original REPO and the client’s claim on the IH/FC under the new
REPO.  The IH/FC’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 counter-parties
to the two transactions are different.  Thus, the IH/FC’s reverse REPO transaction with the BSP shall remain to be recorded as “Government Securities Purchased under Reverse Repurchase Agreements with BSP” under “Trading Account Securities — Loans”.  The IH/FC’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 subsequent sale of the reverse REPO agreements is not subject to reserve requirements.  The pro-forma accounting entries are in Annex “A”^[1]

Accordingly, the Manual of
Accounts for Investment Houses and Financing Companies with
quasi-banking functions is hereby amended as shown in Annex “B”^[2]  Annex
“C”^[3] is the revised Schedule 5 (“Schedule of Bills Payable and Bonds
Payable”) of the Statement of Condition (BSP 7-26-02).

This Circular Letter shall take effect immediately.

(SGD.) NESTOR A. ESPENILLA, JR.
Sector-in-Charge