GUIDELINES ON THE BANGKO SENTRAL NG PILIPINAS (BSP) REDISCOUNTING FACILITY

Sec. X268          Eligibility Requirements for Availment of the BSP Rediscounting Facility by Banks.  The following are the eligibility requirements for availment of the BSP rediscounting facility.

S X268.1            Eligibility Requirements for Applicant Banks.  Banks applying for availment of the BSP rediscounting facility must meet the following eligibility requirements at all times:

a.         Minimum
capital prescribed under Subsections X106.1 and X106.2, as amended
based on the latest available report submitted to Supervisory Reports
and Studies Office (SRSO).

b.         Capital-to-risk
assets ratio as required under Sec. X116 continuously for a period of
thirty (30) days immediately preceding date of application based on
latest available report submitted to SRSO.

c.         Required
loan-loss provision and/or valuation reserves as determined in the last
examination of the appropriate supervising and examining department.

d.         Required
reserves against deposit liabilities/deposit substitutes for two (2)
consecutive weeks immediately preceding the date of application based on
latest available report submitted to SRSO.

e.         Past
due direct and indirect loans to directors, officers, stockholders, and
their related interests (DOSRI) to the aggregate past due loans of not
more than five percent (5%) based on latest available report submitted
to SRSO.

f.          Past due ratio not exceeding the industry average plus two percent (2%) as of the latest quarterly report released by the SRSO.

g.         Compliance with the loans-to-deposit ratio based on latest available report submitted to SRSO.

h.         Investment in bank premises not exceeding fifty percent (50%) of networth based on the latest available report submitted to SRSO.

i.          Required liquidity floor for government deposits based on latest available report submitted to SRSO.

j.          Compliance
with the mandatory allocation of credit to small and medium enterprises
based on the latest available report submitted to SRSO.

k.         No overdrawings in its demand deposit accounts with the BSP.

l.          No past due obligations or collateral deficiencies on account of matured notes/unremitted collections/missing collaterals.

m.        A
CAMELS Composite Rating of three (3) or higher based on the latest
general examination of the appropriate supervising and examining
department.

n.         Submission of required reports on time to the departments and/or offices of the BSP.

o.         Compliance with other applicable laws, rules and regulations, and/or directives of the Monetary Board.

§ X268.2 Eligible Papers and Collaterals.  The BSP shall accept loan papers covering all economic activities except the following: (1) Interbank
loans; (2) DOSRI loans; (3) Extended/Restructured loans; (4) Past due
loans; (5) Unsecured loans, other than microfinance loans; (6) Personal
consumption loans; and (7) Loans for capital assets acquisition.

Credit instruments offered as
collateral shall be subject to the eligibility requirements provided
under Section 82 of R.A. No. 7653.

(a)            Commercial
Credits – Bills, acceptances, promissory notes and other credit
instruments with maturities of not more than one hundred eighty (180)
days from the date of their rediscount, discount or acquisition by the
BSP and resulting from transactions related to:

(1)     the importation, exportation, purchase or sale of readily saleable goods and products, or their transportation within the Philippines; or

(2)     the
storing of nonperishable goods and products which are duly insured and
deposited, under conditions assuring their preservation, in authorized
bonded warehouses or in other places approved by the Monetary Board
(MB).

(b)     Production
Credits – Bills, acceptances, promissory notes and other credit
instruments having maturities of not more than three hundred sixty (360)
days from the date of their rediscount, discount or acquisition by the
BSP and resulting from transactions related to the production or
processing of agricultural, animal, mineral, or industrial products.

(c)     Other Credits – Special credit instruments not otherwise rediscountable
under the immediately preceding subsections (a) and (b) such as
agricultural loans for projects with long gestation period may be
eligible for rediscounting in accordance with rules and regulations
which the BSP shall prescribe.

The promissory notes (PNs)/export bills (EBs)
shall be endorsed in favor of the BSP and certified that the same are
still outstanding as of the time of application, by at least two
responsible officers holding positions not lower than a manager or
equivalent rank, authorized by the borrowing bank’s Board of Directors.

Sec. X269          Terms and Conditions of the BSP loan. The following are the terms and conditions which shall govern the grant of the BSP loan.

§ X269.1 Rediscount Ceiling. The rediscount ceiling of banks shall be 100% of their networth;
for branches of foreign banks, the rediscount ceiling shall be twenty
five percent (25%) of “Net Due to Head Office” plus “Assigned Capital”.  Networth shall be net of any unbooked valuation reserves and other capital adjustments recommended by the concerned BSP supervising and examining department.

§ X269.2 Rediscounting Line. The rediscounting availments of all eligible banks shall be drawn against a rediscounting line. The application for availment
shall be submitted to the Department of Loans and Credit (DLC) or to
the Regional Loans and Credit Unit (RLCU), which will provide the
borrowing bank with a checklist of the documents required.  The
term of the line shall be for one (1) year renewable annually upon
submission of application at least one (1) quarter before expiry of said
line.  The approval of the line/renewal of the
same shall be subject to the banks’ full compliance with the prescribed
eligibility requirements provided in Subsection X268.1.  The
Director of the DLC shall approve the line. With prior approval of the
MB, the rediscounting line may be increased beyond the rediscount
ceiling on a case-to-case basis depending on the credit rating of the
bank concerned.

(a)     Basis. The DLC or the appropriate RLCU shall conduct a credit rating of all banks applying for a rediscounting line.  The
amount of the line shall be based on the credit rating of the bank,
which shall be in accordance with the New Credit Rating Guidelines.

(b)     Application Procedure.
Banks applying for a rediscounting line shall submit their application
in the prescribed form to the DLC or the appropriate RLCU, together with
the following documents:

1.      Board
Resolution duly signed by the Board of Directors of the applicant bank,
authorizing the bank to apply for a rediscounting line with the BSP and
designating at least two (2) officers authorized to endorse PNs/EBs and sign all papers pertaining to rediscounting in the prescribed BSP Forms.

2.      Consolidated
Statement of Condition as of the end of month immediately preceding the
date of application together with the related Statement of Income and
Expenses.

3.      Consolidated
Daily Report of Condition (CDRC) covering the past two (2) consecutive
weeks immediately preceding the date of application.

4.      For
rural and cooperative (coop) banks, a tripartite depository agreement
by and among the applicant rural/coop bank, designated depository bank
(duly concurred by its Head Office) and the DLC/RLCU.

5.      Rediscounting Line Agreement duly signed and executed by the designated authorized officers of the applicant bank.

§ X269.3 Loan Value. The loan value of all eligible papers shall be eighty percent (80%) of the outstanding balance of borrower’s PN/EB.

§ X269.4 Maturities. The maturity of BSP loans/advances/rediscounts are as follows:

a)      Commercial credits — Not to exceed 180 days from the date the proceeds of such loans/advances/rediscounts are released to the applicant bank.

b)      Production credits — Not to exceed 360 days from the date the proceeds for such loans/advances/rediscounts are released to the applicant bank.

c)      Other credits — Not to exceed 360 days, including loans for agricultural purposes with long gestation periods.

The maturity date of the bank’s
rediscounting loan from the BSP, as indicated in its promissory note,
shall not be longer than the latest maturity date indicated in the
borrower’s collateral paper submitted by the bank to support its
rediscounting availments.

§ X269.5 Rediscount/Lending Rates and Liquidated Damages.
The rediscount rates for peso loans shall be based on the applicable
Treasury Bill (TB) rates for the preceding week as follows:

The lending rates that the banks may charge on their rediscounted papers shall not be subject to any ceiling.  However,
the spreads made by banks shall be closely monitored by the BSP to
ensure that these are consistent with prevailing market rates.

Past Due BSP loans and unpaid matured notes shall be levied liquidated damages equivalent to five percent (5%) per annum.

§ X269.6 Release of Proceeds. The proceeds of the rediscounting availment shall be credited to the borrower bank’s demand deposit account or its depository bank’s demand deposit account with BSP.

§ X269.7 Remittance of Collections/Repayments/Arrearages. The following shall govern remittance of collections, repayments and arrearages:

a.       Total
collections received by the borrowing bank before maturity of the
rediscounted promissory note shall be remitted to the DLC or RLCU, not
later than five (5) banking days following the date of receipt of
collections.

In the case of negotiated export
bills, when the bank receives the corresponding payment from its
correspondent bank either through actual remittance or credit advice or
through entry(ies),
charging its correspondent bank before receipt of advice, the amount
rediscounted plus interest and other charges due shall be remitted to
the DLC not later than five (5) banking days following the date of
receipt of payment and/or entry(ies) by Head Office/branches.

The bank shall ensure that adequate records are maintained in its Head Office on the collections made by the branches.

b.      If
the borrower’s promissory note matures before the maturity date of the
bank’s rediscounting loans from the BSP, the loan value of the
borrower’s rediscounted promissory note, including the accrued interest
thereon, shall be debited against the bank’s demand deposit account with
the BSP.

c.       The
loan value of the unaccounted rediscounted promissory notes and/or
underlying collaterals discovered during the credit examination,
including the accrued interest thereon shall be debited against the
bank’s demand deposit account with the BSP.

d.      The
BSP may execute all necessary collection measures allowed by law, such
as foreclosure proceedings against banks with past due loans.

§ X269.8 Prohibited Transactions. The following shall not be allowed:

a.      Substitution of rediscounted promissory notes or underlying collaterals on outstanding loans with BSP.

b.      Renewal
of rediscounted promissory note without remitting payment while the
loan released against the rediscounted promissory note is still
outstanding with the BSP.

c.       Acceptance of properties as payment (Dacion En Pago) without prior approval of BSP.

§ X269.9 Credit Examination of Borrowing Banks.  The
DLC or the appropriate RLCU shall undertake periodic credit examination
of borrowing banks for the purpose of: a) determining the extent of
their compliance with the terms and conditions of the loans granted to
them and adherence to applicable laws, rules and regulations and credit
policies of the BSP; and b) evaluating the effectiveness of their credit
and collection system. DLC/RLCU shall obtain documents from other
lending institutions and other departments of BSP to validate
information.

§ X269.10           Penalties/Sanctions. The following penalties and sanctions shall be imposed on the erring bank and/or the bank’s authorized/certifying officers.

a.  Unremitted Collections/Delayed Remittances. A penalty of 1/10 of 1% per day of delay on unremitted
collections/delayed remittance of collections, commencing from the day
following the deadline prescribed in Subsection X269.7.a, shall be
imposed on the erring bank. Penalties imposed shall not, however, exceed
P30,000.00 per day.  In addition, the following non-monetary sanctions shall be imposed:

1st Offense         –           Warning

2nd Offense        –           If remittance is delayed, suspension of rediscounting privilege for 15 calendar days from date of discovery.  If not remitted, suspension shall start on the date of DLC/RLCU discovery and end 15 calendar days after date of payment.

3rd Offense         –           If remittance is delayed, suspension of rediscounting privilege for 30 calendar days from date of DLC/RLCU discovery.  If not remitted, suspension shall start on the date of DLC/RLCU discovery and shall end 30 calendar days after date of payment.

4th Offense         –           Cancellation
of rediscounting privilege unless restored in the next review but in no
case shall the period of suspension be less than 90 calendar days.

b.  Non-Negotiation of Assigned LC/PO/SC.  A
penalty of 1/10 of 1% per day of delay based on the face
value/outstanding balance of the rediscounted promissory notes but not
exceeding P30,000.00 per day shall be imposed
on banks for non-negotiation of assigned Letters of Credit/Purchase
Orders/Sales Contracts reckoned from the date of the BSP grant to date
of payment, unless the BSP has earlier received a written notice of
extension of the expiry date/validity period of LC/PO/SC from the bank
concerned.

c.  Collaterals with technical deficiency.  A
penalty of 1/10 of 1% per day for collaterals with technical deficiency
(which will increase the credit risk, such as: expired insurance,
unendorsed promissory note, etc.) but not exceeding P30,000.00 per day
shall be charged to banks, if the deficiency is not corrected within
fifteen (15) days from date of DLC examination.

d.  Other Violations.
In addition to the penalties prescribed herein, any misrepresentation,
violation of the terms and conditions of the bank’s promissory note
and/or the rediscounting line agreement, and unauthorized withdrawal of
collaterals from the depository bank, shall subject the borrowing bank
to the following sanctions:

1st Offense         –           Warning

2nd Offense        –           Suspension of rediscounting privilege for 15 calendar days from date of discovery

3rd Offense         –           Suspension of rediscounting privilege for 30 calendar days from date of discovery

4th Offense         –           Cancellation
of the rediscounting privilege unless restored in the next review but
in no case shall the period of suspension be less than 90 calendar days.

For this purpose, failure to
account for missing rediscounted promissory note and/or underlying
collateral shall constitute unauthorized withdrawals of rediscounted
promissory notes and/or underlying collaterals.

If any of the required documents submitted by the bank is discovered to be false/fake/spurious, a fine of P5,000.00
per day from the date of the release of the loan, up to the date of
payment, shall be imposed separately on the bank and on the
authorized/certifying responsible officers.

§ X269.11           Interlocking Directorship/Officership.
All banks owned or managed by the same owners, stockholders, directors,
officers or family/business group shall be automatically suspended from
availment of the rediscounting facility
once the rediscounting privilege of any of the banks belonging to the
same group is suspended, until such time that the suspension of the
erring bank has been lifted.

§ X269.12           Transitory Provisions.  This applies only to those banks which cannot comply with the required rediscount ceiling and past due ratio from the effectivity of this Circular:

a.  Rediscount Ceiling. Banks which have outstanding rediscounting loan to networth ratio exceeding 100 percent, as required under Subsection X269.1 shall be given 5 years from the effectivity of this Circular to reduce their outstanding rediscounting loans and/or increase their networth in order to attain the 100 percent required ratio of rediscounting loans to networth, in accordance with the following schedule:

25% yearly reduction in the ratio of rediscount loans to networth, starting end October 2004 and the succeeding years thereafter until a 100% rediscounting to networth ratio is reached by year 2007.

b.  Past Due Ratio.
Banks with past due ratio exceeding the industry average ratio plus 2%
as required under Subsection X268.1.f shall comply with the requirement
by June 30, 2007.

EFFECTIVITY

This Circular shall take effect immediately.

Adopted: 4 Oct 2002

(SGD.) ARMANDO L. SURATOS
Officer-in-Charge