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Manual of Regulations for Banks Part III - Page 1
X301 - 1301.109.12.31
PART THREE
LOANS, INVESTMENTS AND SPECIAL CREDITS
Section X301 Lending Policies. It shall bethe responsibility of
the board of directorsof a bank to formulate written policies onthe
extension of credit and riskdiversification and to set the
guidelines forevaluation of risk assets. Well-definedlending
policies and sound lendingpractices are essential if a bank is to
performits lending function effectively andminimize the risk
inherent in any extensionof credit. The responsibility should
beapproached in a way that will provideassurance to the public, the
stockholdersand supervisory authorities that timely andadequate
action will be taken to maintainthe quality of the loan portfolio
and otherrisk assets.
X301.1 (Reserved)
1301.1 Rules and regulations to governthe development and
implementation ofbanks internal credit risk rating systems
a. Statement of policy. It is the policyof the BSP to ensure
that banks credit riskmanagement processes are sound andeffective.
Towards this end, the followingrules and regulations that shall
govern theuse of banks internal credit risk ratingsystems are
hereby prescribed.
b. Scope. UBs and KBs must have inplace a formal internal credit
risk ratingsystem for the underwriting and ongoingadministration,
initially, of corporate creditexposures. The internal credit risk
ratingsystem must be appropriate to a banksnature, complexity and
scale of activities.
Initially and until such time that theMonetary Board prescribes
otherwise,corporate credit exposure shall be definedas exposures to
companies with assets ofmore than P15.0 million.
c. Minimum operational requirements(1) A banks internal credit r
isk
rating system must be duly approved bythe board of directors (or
equivalentmanagement committee in the case ofPhilippine branches of
foreign banks).The board should exercise appropriateoversight over
the system in a consistentmanner.
(2) A banks internal credit risk ratingsystem must be
operationally integrated intoits internal credit risk management
process.Its output should accordingly be an integralpart of the
process of evaluation and reviewof prospective and existing
exposures,respectively. Credit underwriting criteriashould become
progressively moreconservative as credit rating declines. Allcredit
decisions must be supported by awritten assessment. In the context
ofongoing review, provisioning standardsmust be rationally tied to
the internal creditrating system.
(3) Banks must have an independentcredit risk control function
that isresponsible for the design, implementationand performance of
their credit risk ratingsystems. The credit risk control
functionmust be independent from the businessfunctions responsible
for originatingexposures.
(4) Internal ratings must be an essentialpart of annual or more
frequent reportingof banks changing portfolio quality overtime to
the board of directors (or equivalentmanagement committee in the
case ofPhilippine branches of foreign banks).Reporting must include
portfoliobreakdown by credit grade, major portfoliosegments
breakdown by credit grade, andanalysis of realized default rates
againstexpectations.
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Part III - Page 2 Manual of Regulations for Banks
1301.109.12.31
(5) Internal and external audit must alsoreview at least
annually the banks internalrating system and its operations,
including theoperations of the credit risk control function.
d. Minimum technical standards(1) Banks must fully document
their
internal credit risk rating systems. Thedocumentation must
address topics such ascoverage, rating criteria, responsibilities
ofparties involved in the ratings process,definition of what
constitutes a ratingexception, parties that have authority
toapprove exceptions, frequency of ratingreviews, and management
oversight of therating process. A bank must document therationale
for its choice of rating criteria andmust be able to provide
analysesdemonstrating that the rating criteria andprocedures are
likely to result in ratings thatmeaningfully differentiate
risk.
(2) The rating criteria should reflect anestablished blend of
qualitative andquantitative factors. Transparent ranges needto be
set for the quantitative standards basedon experience. The
quantitative criteria mustinclude leverage and cash flow
standards.
(3) Banks must maintain ratinghistories on individual accounts,
whichshall include the ratings of the account,the dates the ratings
were assigned, themethodology and key data used to derivethe
ratings and the analyst who gave theratings. The identity of
borrowers andfacilities that default, and the timing
andcircumstances of such defaults, must beretained. Banks must also
retain data onthe realized default rates associated withrating
grades and ratings migration inorder to eventually track the
predictivepower of the risk rating system.
(4) A banks internal credit risk ratingsystem must have a
minimum of 6 ratinggrades for unclassified accounts and 4
ratinggrades for classified accounts, which mustbe assigned in a
consistent manner overtime. Moreover, the rating system must
result in a meaningful distribution ofexposures across grades
with no excessiveconcentrations on a single rating grade.
(5) The ratings output of banksinternal credit risk rating
systems mustcontain both a borrower and a facilitydimension. The
borrower dimension shouldfocus on factors that affect the
inherentcredit quality of each borrower. The facilitydimension, on
the other hand, should focuson security/collateral arrangements
andother similar risk influencing factors of eachtransaction.
(6) In rating corporate borrowers withtotal assets of more than
P15.0 million, onlyfinancial statements audited by externalauditors
that are accredited/selected bythe SEC, the BSP or the
InsuranceCommission (IC) shall be used startingwith the annual
financial statementsending 31 December 2006.1
e. Definition of default and loss. Inconnection with the data
collectionexercise prescribed under this Subsection,banks shall be
guided by the followingstandard definitions of default and
loss:
(1) Definition of defaultA default is considered to have
occurred in the following cases:(a) If a credit obligation is
considered
non-performing under existing rules andregulations;
(b) If a borrower/obligor has sought orhas been placed in
bankruptcy, has beenfound insolvent, or has ceased operationsin the
case of businesses;
(c) If the bank sells a credit obligation ata material
credit-related loss, i.e., excludinggains and losses due to
interest ratemovements. Banks board-approved internalpolicies that
govern the use of their internalrating systems must specifically
define whena material credit-related loss occurs; and
(d) If a credit obligation of a borrower/obligor is considered
to be in default, allcredit obligations of the borrower/obligor
1 The Monetary Board approved the one (1) year suspension of the
requirement on the use of AFS audited by accreditedexternal
auditors for banks internal credit rating system starting fifteen
(15) days after 18 May 2009 (publication date).
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Manual of Regulations for Banks Part III - Page 3
with the same bank shall also be consideredto be in default.
(2) Definition of lossLoss, for purposes of accumulating
data
on loss in the event of default, refers toeconomic loss. It must
therefore includediscount effects, as well as direct and
indirectcosts associated with collecting on the creditobligation.
Banks board-approved internalpolicies that govern the use of their
internalrating systems must include specific policiesand procedures
that should be followed inthe determination of economic loss.
f. Timetable for implementation(1) Banks must submit an
implementation plan to the appropriatedepartment of the SES no
later than 31 July2004. A monetary penalty of P10,000 perday shall
be imposed for delay until suchplan is submitted.
(2) A fully documented internal credit riskrating system, duly
approved by the board ofdirectors, must be submitted to the BSP
notlater than 31 December 2004. Uponsubmission of the system, all
prospective andexisting corporate accounts must immediatelybe
evaluated and monitored according to suchsystem. A monetary penalty
of P10,000 perday shall be imposed for delay until thisrequirement
is complied with.(As amended by Circular Nos. 655 dated 12 May
2009, 585 dated15 October 2007 and 531 dated 17 May 2006)
2301.1 (Reserved)
3301.1 (Reserved)
X301.2 - X301.5 (Reserved)
X301.6 Large exposures and creditrisk concentrations. The
followingguidelines shall govern managing largeexposures and credit
risk concentrations inline with the objective of strengthening
riskmanagement in the banking system.
a. General principles(1) A bank can be exposed to various
forms of credit risk concentration which if
not properly managed may cause significantlosses that could
threaten its financialstrength and undermine public confidencein
the bank.
(2) Credit risk concentrations may arisefrom excessive exposures
to individualcounterparties, groups of related counterpartiesand
groups of counterparties with similarcharacteristics (e.g.,
counterparties in specificgeographical locations, economic or
industrysectors).
(3) Diversification of risk is essential inbanking. Many past
bank failures have beendue to credit risk concentrations of
somekind. It is essential for banks to preventundue credit risk
concentrations fromexcessive exposures to particularcounterparties,
industries, economic sectors,regions or countries.
(4) While concentration of credit risksare inherent in banking
and cannot betotally eliminated, they can be limited andreduced by
adopting proper risk control anddiversification strategies.
Safeguardingagainst credit risk concentrations shouldform an
important component of a banksrisk management system.
(5) The board of directors of a bankshall be responsible for
establishing andmonitoring compliance with policiesgoverning large
exposures and credit riskconcentrations of the bank. The
boardshould review these policies regularly (atleast annually) to
ensure that they remainadequate and appropriate for the
bank.Subsequent changes to the establishedpolicies must be approved
by the board.
(6) The policy on large exposures andcredit risk concentrations
shall, at aminimum, cover the following:
(a) Exposure limits that are reasonablein relation to capital
and resources for -
(i) Various types of borrowers/counterparties (e.g., government,
banksand other FIs, corporate and individualborrowers);
(ii) A group of related borrowers/counterparties;
1301.1 - X301.609.12.31
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(iii) Individual industry sectors;(iv) Individual countries;
and(v) Various types of investments.(b) The circumstances in which
the
above limits can be exceeded and the partyauthorized to approve
such excesses, e.g.,the banks board of directors or creditcommittee
with delegated authority from theboard;
(c) The delegation of credit authoritywithin the bank for
approving largeexposures;
(d) The procedures for identifying,reviewing, managing and
reporting largeexposures of the bank;
(e) The definition of exposure. Banksshould take into account
the nature of theirbusiness and the complexity of theirproducts. In
any case, a banks exposuresto a counterparty should include its on
andoff-balance sheet exposures and indirectexposures; and
(f) The cri teria to be used foridentifying a group of related
persons.
(7) The board and senior managementof a bank should ensure
that:
(a) Adequate systems and controls arein place to identify,
measure, monitor andreport large exposures and credit
riskconcentrations of the bank in a timelymanner; and
(b) Large exposures of the bank arekept under regular review.
Largeexposures shall refer to exposures to acounterparty or a group
of relatedcounterparties equal or greater than fivepercent (5%) of
banks qualifying capital asdefined under Sec. X116.
(8) A bank should, where appropriate,conduct stress testing and
scenario analysisof its large exposures to assess the impactof
changes in market conditions or key riskfactors (e.g. economic
cycles, interest rate,liquidity conditions or other
marketmovements) on its profile and earnings.
(9) It is expected that banks wouldgenerally observe a lower
internal singleborrowers limit than the prescribed limit of
twenty-five percent (25%) as a matter ofsound practice.
b. Monitoring of large exposures/credit risk concentrations
(1) Banks should have a centralliability record (preferably
based onautomated system) for each loan exposure.Banks should be
able to monitor suchexposures against prescribed and internallimits
on a daily basis.
(2) Every bank should have adequatemanagement information and
reportingsystems that enable management toidentify credit risk
concentrations withinthe asset portfolio of the bank or of thegroup
(including subsidiaries and overseasbranches) on a timely basis. If
aconcentration does exist, banks shouldreduce it in accordance with
theirprescribed policies. Large exposures shallbe subject to more
intensive monitoring.
(3) Banks should ensure that theirinternal or external auditors
conduct at leastan annual review of the quality of largeexposures
and controls to safeguard againstcredit risk concentrations. Their
reviewshould ascertain whether:
(a) The banks relevant policies, limitsand procedures are
complied with; and
(b) The existing policies and controlsremain adequate and
appropriate for thebanks business.
(4) Management should take promptcorrective action to address
concerns andexceptions raised.
(5) There should also be anindependent compliance function
toensure that all relevant internal andprescribed requirements and
limits arecomplied with. Breaches of prescribedrequirements and
deviations fromestablished policies and limits should bereported to
senior management in a timelymanner.
c. Unsafe and unsound practiceNon-observance of the principles
and
the requirements of Items a and b abovemay be a ground for a
finding of unsafe
X301.608.12.31
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and unsound practice under Section 56 ofthe General Banking Law
of 2000(Appendix 48) and may be subject toappropriate sanction as
may be determinedby the Monetary Board.
d. Notification requirementsA bank must inform BSP
immediately
when it has concerns that its large exposuresor credit risk
concentrations have thepotential to impact materially upon
itscapital adequacy, along with proposedmeasures to address these
concerns.
e. ReportingBanks records on monitoring of large
exposures shall be made available to theBSP examiners for
verification at any giventime. When warranted, the BSP mayimpose
additional reporting requirementson bank in relation to its large
exposuresand credit risk concentrations.
f. SanctionAny failure or delay in complying with
the requirements under Items d and eof this Subsection shall be
subject topenalty applicable to those involvingmajor reports.
Sec. X302 Loan Portfolio and Other RiskAssets Review System. To
ensure thattimely and adequate management actionis taken to
maintain the quality of the loanportfolio and other risk assets and
thatadequate loss reserves are set up andmaintained at a level
sufficient to absorbthe loss inherent in the loan portfolio
andother risk assets, each bank shall establisha system of
identifying and monitoringexisting or potential problem loans
andother risk assets and of evaluating creditpolicies vis--vis
prevailing circumstancesand emerging portfolio trends.Management
must also recognize that lossreserve is a stabilizing factor and
that failureto account appropriately for losses or makeadequate
provisions for estimated futurelosses may result in
misrepresentation ofthe banks financial condition.
The system of identifying and monitoringproblem loans and other
risk assets andsetting up of allowances for probable lossesshall
include, but is not limited to, theguidelines mentioned in Appendix
18.(As amended by Circular Nos. 622 dated 16 September 2008,603
dated 03 March 2008 and 520 dated 20 March 2006)
X302.1 Provisions for losses; bookingThe board of directors of
banks areresponsible for ensuring that their institutionshave
controls in place to determine theallowance for probable losses on
loans,other credit accommodations, advancesand other assets
consistent with theinstitutions stated policies and
procedures,generally accepted accounting principles(GAAP), the BSP
rules and regulations andthe safe and sound banking practices.
Theboard of directors, in fulfilling thisresponsibility, shall
require managementto develop and maintain an appropriate,systematic
and uniformly applied processconsistent and in compliance
withexisting BSP rules and regulations todetermine the amount of
reserves for baddebts or doubtful accounts or
othercontingencies.
The specific allowance for probablelosses for classified loans
and other riskassets and the general loan loss provisionas required
in Appendix 18 shall be set upimmediately.
X302.2 Sanctions. Non-compliancewith the requirement to book
valuationreserves required under the precedingSubsection shall be a
ground for theimposition of any or all of the
followingsanctions:
a. Denial of the request for authorityto establish new banking
offices regardlessof type or category;
b. Denial of access to BSP creditfacilities except as may be
allowed underSection 84 of R. A. No. 7653; and
c. Fine of P10,000 a day for UBs and
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KBs, P5,000 for TBs and P500 for RBs/CoopBanks, counted as
follows:
(1) from the date the bank has beeninformed that the
recommendation of theappropriate department of the SES has
beenconfirmed by the Monetary Board up to thedate that said
recommended valuationreserves had been actually booked, in thecase
of allowance for probable losses forloans and other risk assets
classified assubstandard unsecured, doubtful and lossas required by
the BSP; and
(2) from the dates prescribed under thisSection up to the date
of the actual bookingin cases of the two percent (2%)
generalprovision for probable losses, the twenty-five percent (25%)
allowance for probablelosses on secured loans classified
assubstandard, and the five percent (5%)allowance for probable
losses on loansespecially mentioned.
A. LOANS IN GENERAL
Sec. X303 Credit Exposure Limits to aSingle Borrower
a. Consistent with national interest,the total amount of loans,
creditaccommodations and guarantees that maybe extended by a bank
to any person,partnership, association, corporation orother entity
shall at no time exceed twentyfive percent (25%) of the net worth
of suchbank. The basis for determiningcompliance with the single
borrowers limit(SBL) is the total credit commitment of thebank to
or on behalf of the borrower.
b. The total amount of loans, creditaccommodations and
guaranteesprescribed in the first paragraph may beincreased for
each of the followingcircumstances:
1. By an additional ten percent (10%) ofthe net worth of such
bank: Provided, Thatthe additional liabilities are
adequatelysecured by trust receipts, shippingdocuments, warehouse
receipts or other
similar documents transferring or securingtitle covering readily
marketable, non-perishable goods which must be fullycovered by
insurance; and
2. By an additional twenty-five percent(25%) of the net worth of
such bank:Provided, That the additional loans, creditaccommodations
and guarantees are for thepurpose of undertaking infrastructure
and/or development projects under the Public-Private Partnership
(PPP) Program of thegovernment duly certified by the Secretaryof
Socio-Economic Planning: Provided,further, That the total exposures
of the bankto any borrower pertaining to suchinfrastructure and/or
development projectsunder the PPP Program shall not
exceedtwenty-five percent (25%) of the net worthof such bank:
Provided, furthermore, Thatthe additional twenty-five percent
(25%)shall only be allowed for a period ofthree (3) years from the
28 December 2010: Provided, finally, That the credit
riskconcentration arising from total exposuresto all borrowers
pertaining to suchinfrastructure and/or development projectsunder
the PPP Program shall be consideredby the bank in its internal
assessment ofcapital adequacy relative to its overall riskprofile
and operating environment. Saidloans, credit accommodations
andguarantees based on the contracted amountas of the end of the
three (3)-year periodshall not be increased but may be reducedand
once reduced, said exposures shall notbe increased thereafter.
c. The above prescribed ceilings shallinclude: (1) the direct
liability of the makeror acceptor of paper discounted with or
soldto such bank and the liability of a generalendorser, drawer or
guarantor who obtainsa loan or other credit accommodation fromor
discounts paper with or sells papers tosuch bank; (2) in the case
of an individualwho owns or controls a majority interest ina
corporation, partnership, association orany other entity, the
liabilities of said entities
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to such bank; (3) in the case of acorporation, all liabilities
to such bank ofall subsidiaries in which such corporationowns or
controls a majority interest; and(4) in the case of a partnership,
associationor other entity, the liabilities of the membersthereof
to such bank.
d. Even if a parent corporation,partnership, association, entity
or anindividual who owns or controls a majorityinterest in such
entities has no liability tothe bank, the liabilities of
subsidiarycorporations or members of the partnership,association,
entity or such individual shallbe combined under certain
circumstances,including but not limited to any of thefollowing
situations: (1) the parentcorporation, partnership, association,
entityor individual guarantees the repayment ofthe liabilities; (2)
the liabilities were incurredfor the accommodation of the
parentcorporation or another subsidiary or of thepartnership or
association or entity or suchindividual; or (3) the subsidiaries
thoughseparate entities operate merely asdepartments or divisions
of a single entity.
e. For purposes of this Section, loans,other credit
accommodations andguarantees shall exclude: (1) loans and
othercredit accommodations secured byobligations of the BSP or of
the PhilippineGovernment; (2) loans and other creditaccommodations
fully guaranteed by thegovernment as to the payment of principaland
interest; (3) loans and other creditaccommodations secured by
U.S.Treasury Notes and other securities issuedby central
governments and central banksof foreign countries with the highest
creditquali ty given by any two (2)internationally accepted rating
agencies;(4) loans and other credit accommodationsto the extent
covered by the hold-out on orassignment of, deposits maintained in
thelending bank and held in the Philippines;(5) loans, credit
accommodations andacceptances under letters of credit to the
extent covered by margin deposits; and(6) other loans or credit
accommodationswhich the Monetary Board may from timeto time specify
as non-risk items.
f. The wholesale lending activities ofgovernment banks to
participating financialinstitutions (PFIs) for relending to
end-userborrowers shall at no time exceed a separatelimit of
thirty-five percent (35%) of networth, subject to the following
guidelines:(1) it shall apply only to loans granted toPFIs on a
wholesale basis for on-lending toend-user borrowers; (2) it shall
apply onlyto loan programs funded by multilateral,international or
local development agencies,organizations or institutions
especiallydesigned for wholesale lending activities ofgovernment
banks; (3) the end-userborrowers of the PFIs shall be subject to
thetwenty-five percent (25%) SBL, not theincreased ceiling of
thirty-five percent(35%); and (4) government banks shallobserve
appropriate criteria for accreditingPFIs and for the grant/renewal
of credit linesto accredited PFIs.
g. Loans and other creditaccommodations as well as
depositsmaintained with, and usual guarantees by abank to any other
bank or non-bank entity,whether locally or abroad, shall be
subjectto the limits as herein prescribed.
Deposits of RBs/Coop Banks withgovernment-owned or controlled
financialinstitutions like the LBP and the DBP shallnot be covered
by the SBL imposed underR.A. No. 8791.
In municipalities and cities where thereare no government banks,
the deposits ofRBs/Coop Banks in private banks in saidareas shall
not be subject to the SBL.Deposits in private banks located in
othermunicipalities/cities shall be covered by theSBL.
The outstanding balance of the depositin a private depository
bank being used bythe TBs/RBs/Coop Banks with authority
toaccept/create demand or current deposits,
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Manual of Regulations for Banks
to fund checks cleared through the saidprivate depository bank
shall also be exemptfrom the SBL even if there is a
government-owned or controlled financial institution inthe area.(As
amended by Circular no. 700 dated 06 December 2010)
X303.1 Definition of terms. Forpurposes of this Section, the
followingdefinitions shall apply:
a. Total credit commitment shallinclude outstanding loans and
other creditaccommodations, deferred letters of creditless margin
deposits, and guarantees.Except as specifically provided, total
creditcommitment shall be reckoned on creditrisk-weighted basis
consistent with existingregulations.
b. Loans shall refer to all the accountsunder the loan portfolio
of a bank asenumerated in the Manual of Accounts forBanks.
c. Other credit accommodations shallrefer to credit and specific
market riskexposures of banks arising fromaccommodations other than
loans such asreceivables (sales contract receivables,accounts
receivables and other receivables),and debt securities booked as
investments.
d. Bank guarantee. A bank guaranteeis an irrevocable commitment
of a bankbinding itself to pay a sum of money in theevent of
non-performance of a contract by athird party. The guarantee is a
commitmentseparate and distinct from the principal debtor
contract.
e. Net worth shall mean the total ofthe unimpaired paid-in
capital includingpaid-in surplus, retained earnings andundivided
profit, net of unbooked valuationreserves and other adjustments as
may berequired by the BSP.
f. Qualifying capital shall mean capitalunder Sec. X116.
g. The term control of majorityinterest shall be synonymous to
controllinginterest and exists when the parent owns
directly or indirectly through subsidiariesmore than one half of
the voting power ofan enterprise unless, in
exceptionalcircumstance, i t can be clearlydemonstrated that such
ownership doesnot constitute control. Control of majorityinterest
may also exist even when theparent owns one-half or less of the
votingpower of an enterprise when there is:
(1) Power over more than one-half ofthe voting rights by virtue
of an agreementwith other investors; or
(2) Power to govern the financial andoperating policies of the
enterprise under astatute or an agreement; or
(3) Power to appoint or remove themajority members of the board
of directorsor equivalent governing body; or
(4) Power to cast the majority votes atmeetings of the board of
directors orequivalent governing body; or
(5) Any other arrangement similar toany of the above.
h. Subsidiary shall refer to acorporation or firm more than
fifty percent(50%) of the outstanding voting stock ofwhich is
directly or indirectly owned,controlled or held with power to vote
by itsparent corporation.
i. Credit risk transfer shall refer toany arrangement that
allows the bank totransfer the credit risk associated with itsloan
or other credit accommodation to athird party.
j. Readily marketable goods shallmean articles of commerce,
agriculture orindustry of such uses as to make them thesubject of
constant dealings in readymarkets with such frequent quotations
asto make their prices easily and definitelyascertainable, or which
lend themselveseasily to disposal by sale at any time topay the
obligations secured by the saidgoods.
k. Bill of exchange drawn in good faithagainst actually existing
values shall meanone (1) which is drawn by a seller on the
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purchaser for the purchase price ofcommodities sold. A bill of
exchange,whether drawn against goods for exportsor against goods to
be sold locally, whichis discounted or purchased by a bank is abill
drawn against existing values onlywhen it is accompanied by
shippingdocuments, warehouse receipts or otherpapers, securing
title to the goods sold.However, bills of exchange drawn ingood
faith against actually existing valuesas defined in this paragraph,
which arepast due or the maturities of which havebeen extended,
shall be considered asadditional loans authorized under thesecond
paragraph of this section and shall
be subject to the ten percent (10%)limitation provided
therein.
l. Commercial or business paperactually owned by the person
negotiatingthe same shall mean a paper arising froman actual
business transaction. A tradeacceptance or promissory note
actuallyowned by the person negotiating the sameis a commercial or
a business paper.However, if a bill is drawn against an agentor
fictitious drawee, or if a promissorynote is executed by an agent
or fictitiousdrawee, neither is a commercial nor abusiness paper.
Commercial or businesspapers actually owned and discounted bythe
person negotiating the same, which are
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past due or the maturity of which have beenextended, shall be
considered as moneyborrowed and shall be subject to thelimitation
of twenty-five percent (25%)provided in the first paragraph of
thisSection: Provided, That commercial orbusiness papers purchased
by banks fromSMEs which became past due or thematurities of which
have been extended,shall be considered additional loan by thebank
to the purchaser of goods or servicesfrom the SME and shall be
entitled to anincreased SBL equivalent to ten percent(10%) of the
net worth of the concernedbank if the purchasers are companies
withcredit ratings of at least AA- or equivalentfrom a
BSP-recognized rating agency.
X303.2 Rediscounted papersincluded in loan limit. The
liabilities to thebank of borrowers whose papers wererediscounted
by banks with the BSP shallnot be deemed as having beenextinguished
by the rediscount, but shallbe considered as still existing and
shall beincluded in determining the SBL until suchpapers are paid
by the borrowers.
X303.3 Credit risk transfer. Subjectto prior approval of the
BSP, loans and othercredit accommodations covered by a
legallyeffective credit risk transfer arrangementsuch as guarantee,
letter of indemnity,standby letter of credit or credit
derivative,may be excluded from the total creditcommitment of the
bank to a borrower inreckoning compliance with the SBL.
X303.4 Exclusions from loan limita. The discount of bills of
exchange
drawn in good faith against actually existingvalues, and the
discount of commercial orbusiness paper which are actually ownedby
the person, company, corporation orassociation negotiating the
same;
b. Credit accommodations to financethe importation of rice and
corn to the
extent of 100% of the net worth of the bankconcerned shall be
excluded indetermining the SBL prescribed herein,subject to the
following conditions:
(1) The importation shall be made inpursuance of a national
policy dulyenunciated by the National Government;
(2) The importation shall have beenapproved by the National
EconomicDevelopment Authority (NEDA);
(3) The letter of credit shall specify thatimportation shall be
made with certificationfrom the National Food Authority (NFA),or
the consular establishment of thePhilippine government at the
source of anysuch establishment of the Philippinegovernment at the
source of any suchshipment to the effect that the commoditybeing
imported is either rice or corn; and
(4) The related bills of lading shallspecify in addition to the
name of theimporter concerned, that the NFA shall bethe consignee
of the shipment;
c. The portion of loans and other creditaccommodations covered
by the guaranteeof IGLF;
d. The total liabilities of a commercialpaper issuer for
commercial paper held bya UB as a firm underwriter shall not
becounted in determining compliance withthe SBL within a period of
180 days fromthe acquisition of the commercial paper bythe UB:
Provided, That in no case shall suchliabilities exceed five percent
(5%) of thenet worth of the UB beyond the normalapplicable SBL;
e. The portion of loans and othercredit accommodations covered
byguarantees of international/regionalinstitutions/multi-lateral
FIs where thePhilippine Government is a member/shareholder, such as
the IFC and the ADB;
f. Loans and other creditaccommodations or portion
thereof,specifically provided for with valuationreserve: Provided,
That the bank has nounbooked valuation reserves;
X303.1 - X303.408.12.31
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g. Loans and other creditaccommodations as a result of
anunderwriting or sub-underwritingagreement of debt securities
outstandingfor a period not exceeding thirty (30)calendar days;
h. Loans granted to foreign embassies.These loans are considered
as loans to theirrespective central governments and as suchshall be
considered non-risk; and
i. Foreign securities lending underSec. X531 and other domestic
securitieslending programs duly recognized by theBSP containing
safeguards consistent withbest international practices, to
protectsecurities lenders risk exposures.(As amended by Circular
Nos. 578 dated 17 August 2007 and550 dated 17 November 2006)
X303.5 Sanctions. Violations of theprovisions of this Section
shall be subjectto the following:
a. Monetary penalties - Fines of one-tenth of one percent (1/10
of 1%) of theexcess over the ceiling but not to exceedP30,000.00 a
day for each SBL violationshall be assessed on the bank to
bereckoned from the date the excess startedup to the date when such
excess waseliminated: Provided, That a maximum fineof P500.00 a day
for each violation shall beimposed against banks with total
resourcesof less than P50.0 million at the time ofgranting of
loan/credit accommodation.
b. Other sanctionsFirst Offense Reprimand for the
directors/officers who approved the creditavailment which
resulted in the excess witha warning that subsequent violations
willbe subject to more severe sanctions.
Subsequent offenses (1) Fine of P1,000.00 for directors/
officers who approved the credit availmentwhich resulted in the
excess.
(2) Suspension of the banks branchingprivileges and access to
BSP rediscountingfacilities until the excess is eliminated.
(3) Other penalties as the MonetaryBoard may impose depending on
thegravity of the offense.
Transitory provision. Outstandingcredit commitments of a bank as
of 02 May2004 which are within the ceilingprescribed under the
regulations existingprior to said date but will exceed
thelimitations prescribed in this Section shallnot be subject to
penalty for a period ofone (1) year or until said creditcommitments
become past due or areextended, renewed or restructuredwhichever
comes later. Said creditcommitments shall, however, be reportedto
the BSP within fifteen (15) banking daysfrom 02 May 2004.
X303.6 X303.7 (Reserved)
X303.8 Limit for wholesale lendingactivities of government
banks. Thereshall be a separate SBL of thirty-five percent(35%) of
unimpaired capital and surplus forthe wholesale lending activities
ofgovernment banks to PFIs for relending toend-user borrowers,
subject to thefollowing guidelines:
a. Government banks SBL of thirty-five percent (35%) of
unimpaired capitaland surplus shall apply only to loansgranted to
PFIs on a wholesale basis foron-lending to end-user borrowers;
b. The thirty-five percent (35%) SBLshall apply only to loan
programs funded bymultilateral, international or localdevelopmental
agencies, organizations orinstitutions specially designed for
wholesalelending activities of government banks;
c. The end-user borrowers of the PFIsshall be subject to the
twenty-five percent(25%) SBL, not to the increased ceiling
ofthirty-five percent (35%); and
d. Government banks shall observethe minimum criteria for
accrediting PFIsand for the grant/renewal of credit lines
toaccredited PFIs as set forth in Appendix 41.
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Sec. X304 Grant of Loans and Other CreditAccommodations. The
following regulationsshall be observed in the grant of loans
andother credit accommodations.
X304.1 General guidelines. Consistentwith safe and sound banking
practices, abank shall grant loans or other creditaccommodations
only in amounts and forthe periods of time essential for
theeffective completion of the operation to befinanced.
Before granting loans or other creditaccommodations, a bank must
ascertainthat the borrower, co-maker, endorser,surety and/or
guarantor, if applicable,is/are financially capable of
fulfillinghis/their commitments to the bank. Forthis purpose, a
bank shall obtain adequateinformation on his/their credit
standingand financial capacities.
In addition to the usual informationsheet about the borrower, a
bank shallrequire from the credit applicant thefollowing:
a. A copy of the latest ITR of theborrower and his co-maker, if
applicable,duly stamped as received by the BIR;
b. Except as otherwise provided bylaw and in other regulations,
if theborrower is engaged in business, a copyof the borrowers
latest financialstatements as submitted for taxationpurposes to the
BIR; and
c. A waiver of confidentiality of clientinformation and/or an
authority of the bankto conduct random verification with theBIR in
order to establish authenticity of theITR and accompanying
financial statementssubmitted by the client.
The documents under Items a andb above shall be required to be
submittedannually for as long as the loan and/orcredit
accommodation is outstanding. Theconsistency of the data/figures in
said ITRs
and financial statements shall also bechecked and considered in
the evaluationof the financial capacity andcreditworthiness of
credit applicants. Thewaiver of confidentiality of
clientinformation and/or an authority of the bankto conduct random
verification with the BIRneed not be submitted annually since
oncesubmitted these documents remain validunless revoked.
Should the document(s) submittedprove to be spurious or
incorrect in anymaterial detail, the bank may terminate anyloan or
other credit accommodationgranted on the basis of said
document(s)and shall have the right to demandimmediate repayment or
liquidation of theobligation. Moreover, the bank may seekredress
from the court for any harm doneby the borrowers submission of
spuriousdocuments.
The required submission of additionaldocuments shall cover
loans, other creditaccommodations, and credit lines
granted,restructured, renewed or extended after02 November 2006
including anyavailment and/or re-availment againstexisting credit
lines, except:
(1) Microfinance loans as defined underSubsec. X361.1 (a);
(2) Loans to registered BarangayMicro-Business Enterprises
(BMBEs);
(3) Interbank loans;(4) Loans secured by hold-outs on or
assignment of deposits or other assetsconsidered non-risk by the
MonetaryBoard;
(5) Loans to individuals who are notrequired to file ITRs under
BIR regulations,as follows:
(a) Individuals whose grosscompensation income does not
exceedtheir total personal and additionalexemptions, or whose
compensationincome derived from one (1) employer
X304 - X304.110.12.31
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does not exceed P60,000 and the incometax on which has been
correctly withheld;
(b) Those whose income has beensubjected to final withholding
tax;
(c) Senior citizens not required to file areturn pursuant to
R.A. No. 7432, asamended by R.A. No. 9257, in relation tothe
provisions of the National InternalRevenue Code (NIRC) or the Tax
ReformAct of 1997; and
(d) An individual who is exempt fromincome tax pursuant to the
provisions ofthe NIRC and other laws, general orspecial; and
(6) Loans to borrowers, whose onlysource of income is
compensation and thecorresponding taxes on which has beenwithheld
at source: Provided, That theborrowers submitted, in lieu of the
ITR, acopy of their Employers Certificate ofCompensation
Payment/Tax Withheld (BIRForm 2316) or their payslips for at
leastthree (3) months immediately precedingthe date of loan
application.
Loans to micro and small enterpriseswhich are not specifically
exempted fromthe additional documentary requirementsspecified under
the third paragraph of thisSubsection shall be exempted from
saidadditional documentary requirement up to31 December 2011.
Consumer loans, with original amountsnot exceeding P2.0 million,
are exemptedfrom updating requirements or the requiredannual
submission of the samerequirements forwarded during the
initialsubmission under this Subsection but notin their
restructuring, renewal, or extensionsor availment/re-availment
against existingcredit lines: Provided, That these loans
aresupported by ITRs or by BIR Form 2316 orpayslips for at least
three (3) monthsimmediately preceding the date of loanapplication,
and financial statementssubmitted for taxation purposes to the
BIR,as may be applicable, at the time the loanswere granted,
restructured, renewed, or
extended.For purposes of this Subsection, the
following definitions shall apply:1. Micro and small enterprises
shall be
defined as any business activity or enterpriseengaged in
industry, agribusiness and/orservices whether single
proprietorship,cooperative, partnership or corporationwhose total
assets, inclusive of those arisingfrom loans but exclusive of the
land onwhich the particular business entitys office,plant and
equipment are situated, must havea value of up to P3.0 million and
P15.0million, respectively, or as may be definedby the SMED Council
or other competentgovernment agency.
2. Consumer loans is defined to includehousing loans, loans for
purchase of car,household appliance(s), furniture and
fixtures,loans for payment of educational and hospitalbills, salary
loans and loans for personalconsumption, including credit card
loans.(As amended by Circular Nos. 694 dated 14 October 2010,622
dated 16 September 2008, 607 dated 30 April 2008 and549 dated 09
October 2006)
X304.2 Purpose of loans and othercredit accommodations. Before
grantinga loan or other credit accommodation,banks shall ascertain
the purpose of the loanor other credit accommodation which shallbe
clearly stated in the application and inthe contract between the
bank andborrower. The proceeds of a loan or othercredit
accommodation shall be utilized onlyfor the purpose(s) stated in
the applicationand contract; otherwise, the bank mayterminate the
loan or other creditaccommodation and demand immediaterepayment of
the obligation.Notwithstanding the preceding sentence,the proceeds
of a loan or other creditaccommodation may be utilized by
theborrower for a purpose(s) other than thatoriginally stated in
the application andcontract: Provided, That such otherpurpose(s)
is/are among those for which the
X304.1 - X304.210.12.31
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lending bank may grant loans and othercredit accommodations
under existing lawsand regulations: Provided, further, That
suchutilization shall be with prior writtenapproval of duly
authorized officer(s)/committee/board of directors of the
lendingbank and such written approval shall formpart of the
contract between the bank andthe borrower.
X304.3 Prohibited use of loanproceeds. Banks are prohibited
fromrequiring their borrowers to acquire sharesof stock of the
lending bank out of the loanor other credit accommodation
proceedsfrom the same bank.
X304.4 Signatories. Banks shallrequire that loans and other
creditaccommodations be made under thesignature of the principal
borrower and, inthe case of unsecured loans and other
creditaccommodations to an individualborrower, at least one (1)
co-maker, exceptthat a co-maker is not required when theprincipal
borrower has the financialcapacity and a good track record of
payinghis obligations.(As amended by Circular No. 622 dated 16
September 2008)
X304.5 - X304.8 (Reserved)
X304.9 Policies on loans to non-immigrants and embassy
officials. Banks areallowed to extend peso loans to
thefollowing:
a. Non-immigrants holding visas issuedunder Secs. 9(d) and 9(g)
of the ImmigrationAct of 1940, Special Investors Resident
Visa(SIRV) and visas issued by the PhilippineEconomic Zone
Authority: Provided, That suchloans shall be limited to peso
consumer loansincluding credit cards, auto loans andappliance
loans, but excluding real estate orhousing loans: Provided,
further, That thelending bank institutes measures to mitigate
credit risk such as requiring the submission ofa Comfort Letter
from the visa holdersemployer, limiting the term of the loan to
theperiod of the visas validity, submission of SIRVidentification
card, as well as subjecting thevisa holder to the usual credit
processes/requirements; and
b. Embassy officials [foreign diplomatsand career consular
officials and employeeswho are physically residing in
thePhilippines for a term of one (1) year ormore]: Provided, That
such loans shall belimited to consumer loans, including
creditcards, auto loans, appliance loans and othersthat may
henceforth be allowed by theMonetary Board: Provided, further, That
thelending bank institutes measures to mitigatecredit risk such as
requiring the submissionof a Comfort Letter from the
Embassyemploying said officials.(M-2007-021 dated 15 August
2007)
X304.10 Minimum requireddisclosure. Banks shall provide a table
ofthe applicable fees, penalties and interestrates on loan
transactions, including theperiod covered by and the manner of
andreason for the imposition of such penalties,fees and interests;
fees and applicableconversion reference rates for third
currencytransactions, in plain sight and language, onmaterials for
marketing loans, such asbrochures, flyers, primers and
advertisingmaterials, on loan application forms, andon billing
statements: Provided, That thesedisclosures are in addition to the
fulldisclosure of the fees, charges and interestrates in the terms
and conditions of the loanagreement: Provided further, That such
tableof fees, penalties and interest rates shall beprinted in plain
language and in bold blackletters against a light or white
background,and using the minimum Arial 12 theme fontand size, or
its equivalent in readability, andon the first page, if the
applicable documenthas more than one (1) page.
X304.2 - X304.1010.12.31
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Transitory provision: Banks shall begiven a period of 120 days
from 6 January2011 to fully implement the requireddisclosure
requirements.(Circular No. 702 dated 15 December 2010)
X304.11 Unfair collection practicesBanks, collection agencies,
counsels andother agents may resort to all reasonable andlegally
permissible means to collect amountsdue them under the loan
agreement:Provided, That in the exercise of their rightsand
performance of duties, they mustobserve good faith and reasonable
conductand refrain from engaging in unscrupulousor untoward acts.
Without limiting thegeneral application of the foregoing,
thefollowing conduct is a violation of thisSubsection:
a. the use or threat of violence or othercriminal means to harm
the physical person,reputation, or property of any person;
b. the use of obscenities, insults, orprofane language which
amount to acriminal act or offense under applicablelaws;
c. disclosure of the names of borrowerswho allegedly refuse to
pay debts, exceptas allowed under Subsec. X304.12;
d. threat to take any action that cannotlegally be taken;
e. communicating or threat tocommunicate to any person
creditinformation which is known to be false,including failure to
communicate that a debtis being disputed;
f. any false representation or deceptivemeans to collect or
attempt to collect anydebt or to obtain information concerning
aborrower; and
g. making contact at unreasonable/inconvenient times or hours
which shall bedefined as contact before 6:00 A.M. or after10:00
P.M., unless the account is past duefor more than sixty (60) days
or the borrowerhas given express permission or said times
are the only reasonable or convenientopportunities for
contact.
Banks shall inform their borrowers inwriting of the endorsement
of the collectionof their account to a collection agency/agent, or
the endorsement of their accountfrom one collection agency/agent to
another,at least seven (7) days prior to the actualendorsement. The
notification shall includethe full name of the collection agency
andits contact details: Provided, That therequired notification in
writing shall beincluded in the terms and conditions of theloan
agreement. Banks shall adopt policiesand procedures to ensure that
personnelhandling the collection of accounts, whetherthese are
in-house collectors, or third-partycollection agents, shall
disclose his/her fullname/true identity to the borrower.(As amended
by Circular No. 702 dated 15 December 2010)
X304.12 Confidentiality ofInformation. Banks shall keep
strictlyconfidential the data on the borrower orconsumer, except
under the followingcircumstances:
a. disclosure of information is with theconsent of the borrower
or consumer;
b. release, submission or exchange ofcustomer information with
other financialinstitutions, credit information bureaus,lenders,
their subsidiaries and affiliates;
c. upon orders of court of competentjurisdiction or any
government office oragency authorized by law, or under
suchconditions as may be prescribed by theMonetary Board;
d. disclosure to collection agencies,counsels and other agents
of the bank toenforce its rights against the borrower;
e. disclosure to third party serviceproviders solely for the
purpose of assistingor rendering services to the bank in
theadministration of its lending business; and
f. disclosure to third parties such asinsurance companies,
solely for the purpose
X304.10 - X304.1210.12.31
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of insuring the bank from borrower defaultor other credit loss,
and the borrower fromfraud or unauthorized charges.(Circular No.
702 dated 15 December 2010)
X304.13 - X304.14 (Reserved)
X304.15 Sanctions.Violations of theprovisions of Subsecs.
X304.10 to X304.12shall be subject to any or all of the
followingsanctions depending upon their severity:
a. First offense. Reprimand for thedirectors/officers
responsible for theviolation;
b. Second offense. Disqualification ofthe bank concerned from
the credit facilitiesof the BSP except as may be allowed
underSection 84 of R. A. No. 7653;
c. Subsequent offense/s:i. Prohibition on the bank concerned
from the extension of additional creditaccommodation against
personal security;and
ii. Penalties and sanctions providedunder Sections 36 and 37 of
R. A. No. 7653.(Circular No. 702 dated 15 December 2010)
Sec. X305 Interest and Other Charges. Therate of interest,
including commissions,premiums, fees and other charges, on anyloan,
or forbearance of any money, goodsor credits regardless of maturity
and whethersecured or unsecured shall not be subjectto any
regulatory ceiling.
X305.1 Rate of interest in the absenceof stipulation. The rate
of interest for theloan or forbearance of any money, goodsor
credits and the rate allowed in judgments,in the absence of
expressed contract as tosuch rate of interest, shall be twelve
percent(12%) per annum.
X305.2 Escalation clause; whenallowable. Parties to an
agreementpertaining to a loan or forbearance of
money, goods or credits may stipulate thatthe rate of interest
agreed upon may beincreased in the event that the applicablemaximum
rate of interest is increased by theMonetary Board: Provided, That
suchstipulation shall be valid only if there is alsoa stipulation
in the agreement that the rateof interest agreed upon shall be
reduced inthe event that the applicable maximum rateof interest is
reduced by law or by theMonetary Board: Provided, further, That
theadjustment in the rate of interest agreed uponshall take effect
on or after the effectivity ofthe increase or decrease in the
maximumrate of interest.
X305.3 Floating rates of interest. Therate of interest on a
floating rate loan duringeach interest period shall be stated on
thebasis of Manila Reference Rates (MRRs),T-Bill Rates or other
market based referencerates plus a margin as may be agreed uponby
the parties.
The MRRs for various interest periods shallbe determined and
announced by the BSPevery week and shall be based on the
weightedaverage of the interest rates paid during theimmediately
preceding week by the ten (10)KBs with the highest combined levels
ofoutstanding deposit substitutes and timedeposits, on promissory
notes issued and timedeposits received by such banks, of
P100,000and over per transaction account, withmaturities
corresponding to the interest periodsfor which such MRRs are being
determined.Such rates and the composition of the sampleKBs shall be
reviewed and determined at thebeginning of every calendar semester
on thebasis of the banks combined levels ofoutstanding deposit
substitutes and timedeposits as of 31 May or 30 November, asthe
case may be.
The rate of interest on floating rateloans existing and
outstanding as of23 December 1995 shall continue to be
X304.12 - X305.310.12.31
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determined on the basis of the MRRsobtained in accordance with
theprovisions of the rules existing as of 01January 1989: Provided,
however, That theparties to such existing floating rate
loanagreements are not precluded fromamending or modifying their
loanagreements by adopting a floating rate ofinterest determined on
the basis of the TBRor other market based reference rates.
Where the loan agreement provides fora floating interest rate,
the interest period,which shall be such period of time forwhich the
rate of interest is fixed, shall besuch period as may be agreed
upon by theparties.
For the purpose of computing theMRRs, banks shall accomplish the
reportforms, RS Form 2D and Form 2E (BSP 5-17-34A).
X305.4 Accrual of interest earned onloans. Banks are allowed to
accrue interestearned on loans, subject to the followingguidelines
and/or procedures.
a. No accrual of interest income isallowed if a loan has become
non-performing as defined under Sec. X309.Likewise, interest income
shall not beaccrued for unmatured loans/receivableswith indications
that collectibility thereofhas become doubtful. These indications
shallinclude declaration of bankruptcy,insolvency, cessation of
operations, or suchother conditions of financial difficulties
orinability to meet financial obligations asthey mature. Separate
appropriate recordsshall be maintained for these
non-accruingunmatured loans.
Interest income on past due loans arisingfrom discount
amortization (and not from thecontractual interest of the accounts)
shall beaccrued as provided in PAS 39.
b. Interest earned on extended orrenewed loans may be accrued:
Provided,
That there is no previously accrued butuncollected interest
thereon.
Interest income on restructured loans(principal plus capitalized
interest thereon)may be accrued: Provided, That these are:
(1) In current status; and(2) Fully secured by real estate with
loan
value of up to sixty percent (60%) of theappraised value of the
real estate securityand the insured improvements thereon, andsuch
other first class collaterals as may bedeemed appropriate by the
Monetary Board.
c.Interest on non-performing loanaccounts shall be taken up as
income onlywhen actual payments thereon are received.
d. Accrued interest earned but not yetcollected/received shall
not be consideredas profits and/or earnings eligible fordividend
declaration and/or profit sharing.
e. A contra account to be designatedAllowance for Uncollected
Interest on Loansshall be set up in accordance with Appendix18 if
accrued interest receivable on loansand loan installments is still
uncollected afterthree (3) months from the date such loansand loan
installments have become non-performing.
f. The amount representing Allowancefor Uncollected Interest on
Loans may bechargeable against the excess ofoutstanding valuation
reserves for loansand other risk assets as appearing in thebanks
books, over those recommendedby the appropriate department of the
SES.The balance thereof, if any, shall bechargeable against
operations.
g. For all purposes, the Allowance forUncollected Interest on
Loans shall beconsidered a valuation reserve/allowanceagainst the
Accrued Interest Receivableaccount.
Sec. X306 Past Due Accounts. Past dueaccounts of a bank shall,
as a general rule,refer to all accounts in its loan portfolio,
X305.3 - X30610.12.31
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all receivable components of trading accountsecurities and other
receivables, as definedin the Manual of Accounts for Banks,
whichare not paid at maturity.1(As amended by M-2010-039 dated 03
November 2010,M-2010-007 dated 23 April 2010, M-2009-040 dated 30
October2009, M-2009- 037 dated 15 October 2009, M 2009-038 dated08
October 2009 and M-2009-036 dated 07 October 2009)
X306.1 Accounts considered past dueThe following shall be
considered as pastdue:
a. Loans or receivables payable ondemand - If not paid on the
date indicatedon the demand letter, or within three (3)months from
date of grant, whichever comesearlier;
b. Bills discounted and time loans,whether or not representing
availmentsagainst a credit line - If not paid on therespective
maturity dates of the promissorynotes;
c. Customers liability on drafts underletters of credit/trust
receipts:
(1) Sight Bills - If dishonored uponpresentment for payment or
not paid withinthirty (30) days from date of original
entry,whichever comes earlier;
(2) Usance Bills - If dishonored uponpresentment for acceptance
or not paid ondue date, whichever comes earlier; and
(3) Trust receipts - If not paid on due date.d. Bills and other
negotiable
instruments purchased - If dishonoredupon presentment for
acceptance/payment or not paid on maturity date,whichever comes
earlier: Provided,however, That an out-of-town check anda foreign
check shall be considered as pastdue if outstanding for thirty (30)
days andforty-five (45) days, respectively, unlessearlier
dishonored;
e. Loans/receivables payable ininstallments - The total
outstandingbalance thereof shall be considered pastdue in
accordance with the followingschedule:
Minimum No. of Installments
Mode of Payment In Arrears Monthly 3 Quarterly 1 Semestral 1
Annual 1
Provided, however, That when the totalamount of arrearages
reaches twenty percent(20%) of the total outstanding balance of
theloan/receivable, the total outstandingbalance of the
loan/receivable shall beconsidered as past due, regardless of
thenumber of installments in arrears: Provided,further, That for
modes of payment otherthan those listed above (e.g., daily,
weeklyor semi-monthly), the entire outstandingbalance of the
loan/receivable shall beconsidered as past due when the totalamount
of arrearages reaches ten percent(10%) of the total loan/receivable
balance;
For this purpose, the terminstallments shall refer to
principaland/or interest amortizations that are dueon several dates
as indicated/specified inthe loan documents.
f. Credit card receivables - If theminimum amount due or minimum
paymentrequired is not paid within two (2) cycledates, the total
amount due stated in themonthly billing statement:
Provided,however, That the total outstanding balancewhich includes
amortization/s of any fixedmonthly installment plan or
deferredpayment scheme shall be considered andreported past due
when the number ofmonthly installments in arrears is three (3)or
more: Provided, further, That the bankshall have the right to
demand the obligationin full in case of default in any
installmentthereon if the contract between the bank andthe
cardholder contains an accelerationclause; and
g. (Deleted by Circular No. 202 dated27 May 1999)
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h. Microfinance loans - Past Due/Portfolio-at-Risk (PAR) is the
outstandingprincipal amount of all loans that have atleast one (1)
installment past due for one (1)or more days. The amount includes
theunpaid principal balance but excludesaccrued interest. Under
PAR, loans areconsidered past due if a payment has fallendue and
remained unpaid. Loan paymentsare applied first to any interest
due, then toany installment of principal that is due butunpaid,
beginning with the earliest suchinstallment. The number of days of
lateness/delinquency is based on the due date of theearliest loan
installment that has not beenfully paid.
For the purpose of determiningdelinquency in the payment of
obligationsas defined in Subsec. X143.1e, any due andunpaid loan
installment or portion thereof,from the time the obligor defaults,
shall beconsidered past due.(Circular No. 409 dated 14 October
2009, as amended by CircularNo. 607 dated 30 April 2008)
X306.2 Demand loans. Banks shall,in case of non-payment of a
demand loan,make a written demand within three (3)months following
the grant of such loan. Thedemand shall indicate a period of
paymentwhich shall not be later than three (3) monthsfrom date of
said demand.
X306.3 Renewals/extensions. No loanshall be renewed or its
maturity date ex-tended unless the corresponding accruedinterest
receivable shall have been paid.
X306.4 Restructured loansRestructured loans whose terms of
paymenthave not been complied with and whichhave become past due
shall be governed bythe provisions of Sec. X322.
X306.5 Write-off of loans as bad debtsa. Approval by board of
directors
Banks, upon approval by their board ofdirectors may write-off
loans, other creditaccommodations, advances, and otherassets,
regardless of amount, againstallowance for probable losses
(valuationreserves) or current operations as soon asthey are
satisfied that such loans, other creditaccommodations, advances and
other assetsare worthless as follows:
(1) In the case of secured loans, banksmay write-off loans,
other creditaccommodations and other assets in anamount
corresponding to the bookedvaluation reserves: Provided, That
thebalance of the secured loans, other creditaccommodations,
advances and other assetsshall remain in the books.
(2) In the case of unsecured loans, othercredit accommodations,
advances
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and other assets, banks shall write-off saidloans, other credit
accommodations,advances and other assets in full
amountoutstanding.
However, write-off of loans, othercredit accommodations,
advances andother assets considered transactions withDOSRI shall be
with prior approval of theMonetary Board.
b. Definitions. For purposes of thisSection, the following terms
are herebydefined as follows:
(1) Loans. The term loans shall referto all the accounts under
the loan portfolioof a bank as enumerated in the Manual ofAccounts
for Banks.
(2) Other credit accommodations. Theterm other credit
accommodations shallrefer to exposures of banks other than
loanssuch as sales contract receivables, accountsreceivables,
accrued interest receivables,lease receivables, and rental
receivables.
(3) Advances. The term advances shallrefer to any advance by
means of anincidental or temporary overdraft, cashvale, any advance
by means of DAUDand any advances of unearned salary orunearned
compensation.
(4) Other assets. The term other assetsshall refer to
investments, placements,ROPAs and all other asset accounts that
willnot fall under loans and other creditaccommodations.
(5) Bad debts. The term bad debts shallrefer to the definition
under Subsec. X136.1.
c. Reporting requirements. Notice ofwrite-off of loans, other
creditaccommodations, advances, and otherassets shall be submitted
in the prescribedform to the appropriate department of SESconcerned
within thirty (30) days afterevery write-off with (i) a sworn
statementsigned by the President of the bank orofficer of
equivalent rank that write-off didnot include transactions with
DOSRI and(ii) a copy of board resolution approvingthe
write-off.
The income tax expense deferredcorresponding to the amount of
loan, othercredit accommodation, advances and otherasset
written-off considered deductible forincome tax purposes shall be
recognizedand reversed in banks books.
d. Verification of write-offs. Write-offsof loans shall be
subject to verificationduring examination.
X306.6 Writing-off microfinanceloans as bad debts. Microfinance
loans,regardless of amount that have becomepast due in accordance
with Subsec.X306.1h may be written-off, in conformitywith the
provisions of Subsec. X306.5:Provided, That the notice of write-off
andattachments required under Item c ofSubsec. X306.5 are filed
within thirty (30)days after every write-off of loans.
X306.7 Updating of informationprovided to credit information
bureausBanks which have provided adverseinformation, such as the
past due or litigationstatus of loan accounts, to credit
informationbureaus, or any organization performingsimilar
functions, shall submit monthlyreports to these bureaus or
organizations onthe full payment or settlement of thepreviously
reported accounts within five (5)banking days from the end of the
monthwhen such full payment was received. Forthis purpose, it shall
be the responsibility ofthe reporting banks to ensure that
theirdisclosure of any information about theirborrowers/clients is
with the consent ofborrowers/clients concerned.(Circular No. 589
dated 18 December 2007)
Sec. X307 Truth in Lending ActDisclosure Requirement. Banks
arerequired to strictly adhere to the provisionsof R.A. No. 3765,
otherwise known as theTruth in Lending Act, and shall make thetrue
and effective cost of borrowing anintegral part of every loan
contract.
X306.5 - X30708.12.31
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Part III - Page 18
Manual of Regulations for Banks
The following regulations shall applyto all banks engaged in the
following typesof credit transactions:
a. Any loan, mortgage, deed of trust,advance and discount;
b. Any conditional sales contract, anycontract to sell, or sale
or contract of sale ofproperty or services, either for present
orfuture delivery, under which part or all ofthe price is payable
subsequent to themaking of such sale or contract;
c. Any rental-purchase contract;d. Any contract or arrangement
for the
hire, bailment, or leasing of property;e. Any option, demand,
lien, pledge,
or other claim against, or for delivery of,property or
money;
f. Any purchase, or other acquisitionof, or any credit upon
security of anyobligation or claim arising out of any of
theforegoing; and
g. Any transaction or series oftransactions having a similar
purpose oreffect.
The following categories of credittransactions are outside the
scope of theseregulations:
(1) Credit transactions which do notinvolve the payment of any
finance chargeby the debtor; and
(2) Credit transactions in which thedebtor is the one specifying
a definite andfixed set of credit terms such as bank
deposits,insurance contracts, sale of bonds, etc.
X307.1 Definition of termsa. Person means any individual,
partnership, corporation, association orother organized group of
persons, or thelegal successor or representative of theforegoing,
and includes the PhilippineGovernment or any agency thereof or
anyother government, or any of its politicalsubdivisions, or any
agency of theforegoing.
b. Cash price or delivered price, incase of trade transactions,
is the amount ofmoney which would constitute full
payment upon delivery of property (exceptmoney) or service
purchased at the banksplace of business. In the case of
financialtransactions, cash price represents theamount of money
received by the debtorupon consummation of the credittransaction,
net of finance chargescollected at the time the credit is
extended(if any).
c. Down Payment represents theamount paid by the debtor at the
time ofthe transaction in partial payment for theproperty or
service purchased.
d. Trade-in represents the value of anasset agreed upon by the
bank and debtor,given at the time of the transaction in
partialpayment for the property or servicepurchased.
e. Non-finance charges correspond tothe amounts advanced by the
bank foritems normally associated with theownership of the property
or of theavailment of the service purchased whichare not incident
to the extension of credit.For example, in the case of the
purchaseof an automobile on credit, the creditormay advance the
insurance premium aswell as the registration fee for the accountof
the debtor.
f. Amounts to be financed consist ofthe cash price plus
non-finance charges lessthe amount of the down payment and valueof
the trade-in.
g. Finance charge represents theamount to be paid by the debtor
incidentto the extension of credit such as interestor discounts,
collection fees, creditinvestigation fees, attorneys fees and
otherservice charges. The total finance chargerepresents the
difference between (a) theaggregate consideration (downpaymentplus
installments) on the part of the debtorand (b) the sum of the cash
price and non-finance charges.
h. Simple annual rate is the uniformpercentage which represents
the ratio, onan annual basis, between the financecharges and the
amount to be financed.
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Manual of Regulations for Banks Part III - Page 19
In the case of a single payment uponmaturity, the simple annual
rate (R) inpercent is determined by the followingmethod:
(finance charge) 12R= (amount to be X (maturity X 100
financed) period in months)
In the case of the normal installmenttype of credit of at least
one (1) year induration, where installment payments ofequal amount
are made in regular timeperiods spaced not more than one (1)
yearapart, the R in percent is computed by thefollowing method:
(no. of payment (finance charge) in a year)
R=2x x x 100 (amount to be (total no. of
financed) paymentsplus one)
In case where the credit matures in lessthan one (1) year (e.g.,
installment paymentsare required every month for six (6) months)the
same formula will apply except that thenumber of payments in a year
would referto the number of installment periods, asdefined in the
credit contract if the creditmatures in one (1) year. For example,
thenumber of payments a year would be twelve(12) for this purpose
in case where six (6)monthly installment payments are called forin
the credit transaction.1
X307.2 Information to be disclosedBanks shall furnish each
person to whomcredit is extended, prior to theconsummation of the
transaction, a clearstatement in writing setting forth thefollowing
information:
a. The cash price or delivered priceof the property or service
to be acquired;
b. The amounts, if any, to be creditedas downpayment and/or
trade-in;
1 This can be determined by dividing twelve, the number of
months in a year, by the number or fraction of months
betweeninstallment payments.
c. The difference between the amountsset forth under Items a and
b;
d. The charges, individually itemized,which are paid or to be
paid by such personin connection with the transaction but whichare
not incident to the extension of credit;
e. The total amount to be financed;f. The finance charges
expressed in
terms of pesos and centavos; andg. The percentage that the
finance
charge bears to the total amount to befinanced expressed as a
simple annual rateon the outstanding unpaid balance of
theobligation.
The contract covering the credittransaction or any other
document to beacknowledged and signed by the debtor,shall indicate
the above seven (7) items ofinformation. In addition, the contract
ordocument shall specify additional charges,if any, which will be
collected in casecertain stipulations in the contract are notmet by
the debtor.
In case any of the seven (7) items ofinformation mentioned is
not disclosed inthe contract covering the credit transaction,all of
the seven (7) items, to the extentapplicable, shall be disclosed in
anotherdocument in a form (Appendix 19)prescribed by the Monetary
Board, to besigned by the debtor and appended to themain contract.
A copy of the disclosurestatement shall be furnished the
borrower.
X307.3 Inspection of contractscovering credit transactions.
Banks shallkeep in their offices or places of businesscopies of
contracts which involve theextension of credit by the bank and
thepayment of finance charges therefor. Suchcopies shall be
available for inspection orexamination by the appropriate
departmentof the SES.
X307.4 Posters. Banks shall post inconspicuous places in their
principal placeof business and branches, if any, the following:
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Part III - Page 20 Manual of Regulations for Banks
a. An abstract of the provisions ofR.A. No. 3765 in the form
prescribed bythe Monetary Board (Appendix 20) whichshall be
reproduced in a format sixty (60)c.m. wide and seventy-five (75)
c.m. long;and
b. Information regarding interest andother charges on loans:
(1) Type of loan;(2) Simple annual rate of interest;(3) Manner
of interest payment; i.e.
whether collected in advance or otherwise;and
(4) Other fees and charges imposed bythe bank in connection with
the loan.
Sec. X308 Amortization on Loans andOther Credit Accommodations.
Theamortization schedule of bank loans andother credit
accommodations shall beadapted to the nature of the operations tobe
financed.
In case of loans and other creditaccommodations with maturities
of morethan five (5) years, provisions must bemade for periodic
amortization payments,but such payments must be made at
leastannually: Provided, however, That whenthe borrowed funds are
to be used forpurposes which do not initially producerevenues
adequate for regularamortization payments, the bank maypermit the
initial amortization payment tobe deferred until such time as
saidrevenues are sufficient for such purpose,but in no case shall
the initial amortizationdate be later than five (5) years from
thedate on which the loan or other creditaccommodation is granted:
Provided,further, That in the case of agriculture andfisheries
projects with long gestationperiods, the initial amortization
paymentmay be deferred for a longer period basedon the economic
life of the project asprovided under Section 24 of R.A. No.8435 and
implemented under Sec. X349.
Sec. X309 Non-Performing Loans
X309.1 Accounts considered non-performing; definitions
a. Non-performing loans shall, as ageneral rule, refer to loan
accounts whoseprincipal and/or interest is unpaid for thirty(30)
days or more after due date or after theyhave become past due in
accordance withexisting rules and regulations. This shallapply to
loans payable in lump sum andloans payable in quarterly,
semi-annual orannual installments, in which case, the
totaloutstanding balance thereof shall beconsidered
non-performing.
b. In the case of loans payable inmonthly installments, the
total outstandingbalance thereof shall be considered non-performing
when three (3) or moreinstallments are in arrears.
c. In the case of loans payable in daily,weekly or semi-monthly
installments, thetotal outstanding balance thereof shall
beconsidered non-performing at the same timethat they become past
due in accordancewith Sec. X306, i.e., the entire
outstandingbalance of the loan/receivable shall beconsidered as
past due when the totalamount of arrearages reaches ten
percent(10%) of the total loan/receivable balance.
d. Restructured loans shall beconsidered non-performing in
accordancewith Subsec. X322.1.
e. All items in litigation as defined inthe Manual of Accounts
for Banks shall beconsidered non-performing.
f. In the case of microfinance loans, pastdue/portfolio-at-risk
(PAR) accounts asdefined in Subsec. X361.1(b) shall beconsidered
NPL.
Only the following accounts arequalified to be excluded from the
non-performing classification:
(1) Loans previously classified as Lossby the BSP fully covered
by allowance forprobable losses; and
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Manual of Regulations for Banks Part III - Page 21
(2) Outstanding credit card receivablesclassified as Loss in the
latest BSPexamination plus credit card receivablesclassified as
Loss by the bank but not toexceed the total amount classified as
Lossin the latest BSP examination: Provided, Thatinformation on the
outstanding credit cardreceivables classified as Loss as of
thereporting month shall be reported in aseparate item in the
Additional Informationof the CSOC. Only banks with no
unbookedvaluation reserves and capital adjustments,even if approved
for booking on a staggeredbasis, are qualified to exclude
loansclassified as Loss by the BSP from the non-performing
classification: Provided, Thatinterest on said loans shall not be
accruedand that such loans shall also be deductedfrom total loan
portfolio for purposes ofcomputation.(As amended by Circular No.
607 dated 30 April 2008)
X309.2 - X309.3 (Reserved)
X309.4 Reporting requirement. Banksshall report the following
data, at the endof each month, as additional information(under Item
7) of the monthly CSOC:7. Total Non-Performing Loans
a. Non-performing regular loans xxxb. Non-performing
restructured
loans xxx
7a. Loans classified as Loss inthe latest examination by the
BSPwhich are fully covered byAllowance for Probable Losses,net of
write-offs and recoveries xxx
7b. Outstanding credit cardreceivables classifed as Lossin the
latest BSP examination,net of write-offs, recoveriesand collections
xxx
7c. Credit card receivablesclassified as Loss by thebank as of
this month xxx
Banks which are not qualified underSubsec. X309.1 to exclude
loans classifiedas Loss by the BSP from the non-performing
classification may opt not to fillup Item 7a of the Additional
Informationof the monthly CSOC.
Sec. X310 (Reserved)
B. SECURED LOANS
Sec. X311 Loans Secured by Real EstateMortgages. Loans against
real estate securityshall not exceed seventy percent (70%) ofthe
appraised value of the respective realestate security plus seventy
percent (70%)of the appraised value of insuredimprovements, and
such loans shall not bemade unless title to the real estate is in
themortgagor.
In the case of UBs/KBs, the loan valuesof real estate given as
security for any loangranted shall be reduced from seventypercent
(70%) to not more than sixty percent(60%) of the appraised value of
the realestate security and the insured improvements,except the
following which shall be alloweda maximum value of seventy percent
(70%) ofthe appraised value:
a. Any loan not exceeding P3.5 millionto finance the acquisition
or improvementof residential units; and
b. Housing loans extended orguaranteed under the governments
NationalShelter Program (NSP) such as the ExpandedHousing Loans
Program (EHLP) of the HomeDevelopment Mutual Fund (HDMF or Pag-IBIG
Fund) and the mortgage and guaranty andcredit insurance program of
the HomeInsurance and Guaranty Corporation (HIGC).
X311.1 Loans secured by juniormortgage on real estate. Banks may
alsogrant loans on the security of juniormortgages on real estate:
Provided, That forsuch loans to be considered as adequatelysecured
under Sections 37 and 38 ofR.A. No. 8791, the sum total of the
loans to
X309.1 - X311.108.12.31
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Part III - Page 22 Manual of Regulations for Banks
be granted and the outstanding balanceof the loan granted on the
senior mortgageshall not, at any time, exceed the loanvalue of
subject real estate security basedon the appraisal of the real
estate by thejunior mortgagee.
A certified latest statement of accountshowing the outstanding
balance of the loanincluding interest and arrearages, from
thesenior mortgagee shall be presented to thebank.
In case several loans are granted on thesecurity of the same
property, the totalamount of the loans shall not, at any
time,exceed the total loan value of the saidproperty.
X311.2 (Reserved)
1311.2 (Reserved)
2311.2 (Reserved)
3311.2 E l ig ib le rea l es ta tecollaterals on
rural/cooperative bankloans. Loans may be granted by RBs/CoopBanks
on the security of lands withoutTorrens Title where the owner of
privateproperty can show five (5) years or more ofpeaceful,
continuous and uninterruptedpossession in the concept of an owner;
orof portions of friar land estates or other landsadministered by
the Bureau of Lands thatare covered by sales contracts and
thepurchasers have paid at least five (5) yearsinstallment thereon,
without the necessityof prior approval and consent by theDirector
of Lands, or of portions of otherestates under the administration
of theDepartment of Agrarian Reform (DAR) orother governmental
agency which arelikewise covered by sales contracts and
thepurchasers have paid at least five (5) yearsinstallments
thereon, without the necessityof prior approval and consent of the
DARor corresponding governmental agency; orof homesteads or free
patent lands pending
the issuance of titles but already approved,the provisions of
any law or regulations tothe contrary notwithstanding: Provided,
Thatwhen the corresponding titles are issued,the same shall be
delivered to the Registerof Deeds of the province where such
landsare situated for the annotation of theencumbrance: Provided,
further, That in thecase of lands pending homestead or freepatent
titles, copies or notices for thepresentation of the final proof
shall also befurnished the creditor RB/Coop Bank and,if the
borrower applicants fail to present thefinal proof within thirty
(30) days from dateof notice, the creditor RB/Coop Bank maydo so
for them at their expense: Provided,furthermore, That the applicant
forhomestead or free patent has already madeimprovements on the
land and the loanapplied for is to be used for furtherdevelopment
of the same or for otherproductive economic activities:
Provided,finally, That the appraisal and verificationof the status
of a land is a full responsibilityof the RB/Coop Bank and any loan
grantedon any land which shall be found later tobe within the
forest zones shall be for thesole account of the RB/Coop Bank.
X311.3 Insurance on real estateimprovements. The required
insurance onimprovements used as collateral for loanshould be such
as shall be sufficient tosecure seventy percent (70%) of
theappraised value of such improvements or ifinadequately insured,
the loan value shallcorrespond to the extent of insurance takenon
such improvements.
X311.4 (Reserved)
1311.4 (Reserved)
2311.4 Foreclosure by thrift banksThe foreclosure of mortgages
covering loansgranted by TBs and executions of judgmentthereon
involving real properties
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Manual of Regulations for Banks
2311.4 - 3311.410.12.31
Part III - Page 23
levied upon by a sheriff shall be exempt fromthe publications in
newspapers nowrequired by law where the total amount ofloan,
excluding interests due and unpaid,does not exceed P100,000 or such
amountas the Monetary Board may prescribe asmay be warranted by
prevailing economicconditions and by the nature of service
ofcustomers served by each category of theTB. It shall be
sufficient publication in suchcases if the notices of foreclosure
andexecution of judgment are posted in theconspicuous area of the
TBs premises,municipal building, municipal publicmarket, the
barangay hall, and the barangaypublic market, if there be any,
where theland mortgaged is situated within a periodof sixty (60)
days immediately preceding thepublic auction of execution of
judgment.Proof of publication as required herein shallbe
accomplished by an affidavit of the sheriffor officer conducting
the foreclosure saleor execution of judgment and shall beattached
with the records of the case.
A TB shall be allowed to foreclose landsmortgaged to it:
Provided, That said landsshall be covered under R.A. No. 6657.
3311.4 Foreclosure by rural/cooperative banks. The foreclosure
ofmortgages covering loans granted by RBsand executions of judgment
thereoninvolving real properties levied upon by asheriff shall be
exempt from the publicationsin newspapers now required by law
wherethe total amount of loan, excluding interestsdue and unpaid,
does not exceed P100,000or such amount as the Monetary Board
mayprescribe as may be warranted byprevailing economic conditions.
It shall besufficient publication in such cases if thenotices of
foreclosure and execution ofjudgment are posted in the conspicuous
areaof the municipal building, the municipalpublic market, the
barangay hall, and the
barangay public market, if any, where theland mortgaged is
situated during the periodof sixty (60) days immediately preceding
thepublic auction of execution of judgment.Proof of publication as
required herein shallbe accomplished by an affidavit of the
sheriffor officer conducting the foreclosure sale orexecution of
judgment and shall be attachedwith the records of the case:
Provided, Thatwhen a homestead or free patent isforeclosed, the
homesteader or free patentholder, as well as his heirs shall have
theright to redeem the same within one (1) yearfrom the date of
foreclosure in the case ofland not covered by a Torrens Title or
one(1) year from the date of the registration ofthe foreclosure in
the case of land coveredby a Torrens Title.
In the case of Coop Banks theforeclosure of mortgages and
execution ofjudgment thereon involving real propertieslevied upon
by a sheriff shall be exemptfrom the publications in newspaper
nowrequired by law where the total amountof loan, excluding
interests due andunpaid, does not exceed P250,000 orsuch amount as
the BSP may prescribe asmay be warranted by prevailing
economicconditions and by the nature and characterof the Coop
Banks. It shall be sufficientpublication in such cases if the
notices offoreclosure and execution of judgment areposted in
conspicuous areas in the bankspremises, municipal hall, the
municipalpublic market, the barangay hall and thebarangay public
market, if any, where theproperty mortgaged is situated during
theperiod of sixty (60) days immediatelypreceding the public
auction or executionof judgment. Proof of publication as
requiredherein shall be accomplished by an affidavitof the sheriff
or officer conducting theforeclosure sale or ex