CBP Memorandum

March 12, 1982 CBP MEMORANDUM TO : All Commercial Banks Authorized to Engage In Expanded Banking Activities, the Development Bank of the Philippines (DBP) and the Land Bank of the Philippines (LBP) Pursuant to Monetary Board Resolution No. 188 dated January 29, 1982, the following guidelines shall govern availments against the special credit facility of the Central Bank for medium and long-term financing to commercial banks authorized to engage in expanded banking activities (unibanks), the DBP and the LBP as embodied under Circular No. 846 dated February 1, 1982: SECTION 1. Purpose The special credit facility shall be granted to provide financial assistance to viable industries engaged in high priority activities and for investments by the abovementioned banks in equities of subsidiaries/affiliates and other firms as authorized under the unibanking law. This financial assistance may also be utilized for investments by the said banks in high grade shares listed in the stock exchanges as may be determined by the Central Bank in consultation with the Securities and Exchange Commission (SEC). LexLib SECTION 2. Eligible Projects/Equity Investments Projects eligible for this special credit facility through the unibanks, DBP and LBP shall be those considered as high priority economic activities including, but not limited to the following: a. Projects registered under the Investment Priority Program (IPP), Export Priority Program (EPP), and Agricultural Priority Program (APP), of the Board of Investments; b. Small and medium scale industries; c. Production of export goods and services; d. Export trading of non-traditional items; e. Health and educational projects; and f. Facilities for shipping and freight services. Proceeds of the loans pertaining to Items a. to f. of this Section shall be utilized for (a) working capital requirements, (b) acquisition of plant sites and construction of factory buildings and facilities, (c) local purchases of machinery and equipment or (d) development/expansion of existing projects, or a combination of any or all of these purposes. The special financing facility may also be availed of against investments in equities of subsidiaries/affiliates and other firms as well as in high grade shares mentioned in the preceding section. SECTION 3. Eligible Collateral Papers offered as collateral shall be subject to the eligibility requirements provided for under Section 88-A of R.A. 265, as amended, and under Circular No. 846, dated February 1, 1982, specifically the following: a. Financial Assistance The payments, installments or amortizations to be pledged or assigned shall be those falling due on a staggered basis i.e., quarterly, semi-annually, annually, over a period not exceeding ten (10) years from the date of loan application, which shall in no case be in arrears and are adequately secured by real or chattel mortgages related to transactions covering high priority projects, mentioned in Section 2 above. Repayments on principal may be allowed a grace period of one (1) or two (2) years, provided that the maturity period of the assigned accounts will not be beyond five (5) years and ten (10) years, respectively, and provided further that interest shall be collected at the end of each scheduled amortization period; b. Equity Investments 1. The applicant bank's holdings of shares of stock of its subsidiaries/affiliates and equities in other firms shall be subject to the limitations under Section 37-43 of Circular 739 on equity investments of unibanks. 2. High grade shares to be pledged shall be those listed in the stock exchanges as mentioned in Section 1 hereof; LexLib SECTION 4. Documents Required To avail of advances under this special credit facility, the following documents and supporting papers shall be submitted: a. Application for loan or advance in the prescribed form together with the rediscount schedule(s) (Annex A) and the covering promissory note signed by two (2) duly authorized officers of the bank in favor of the Central Bank; b. Deed of Assignment covering the payments, installments or amortizations offered as security for the loans, for advances covering high priority projects; c. Collateral promissory notes duly endorsed by two (2) authorized officers of the bank; d. Real estate mortgages with the corresponding transfer certificate of title/chattel mortgages with the latest inventory listing and valuation as well as the appraisal report on the collateral offerings; e. Certification of the applicant bank to the effect that the payments, installments or amortizations to be pledged or assigned to the Central Bank are in no case currently in arrears and that they are related to credit operations which are adequately secured by mortgages; LexLib f. Copy of the latest audited financial statements of the bank's borrowers; and g. In the case of advances against investment in equities, the shares of stock offered as collaterals together with the covering Deed of Pledge. SECTION 5. Loan Values, Rediscount Rates and Maximum Bank Lending Rates The loan values, rediscount rates and maximum bank lending rates of the papers offered as security for the loan or advance shall be as follows: CB Rediscount Maximum Bank Collateral Loan Value Rate Lending Rate a. Pledge or assignment of 75% 11% p.a. 16% p.a. payments installments or amortizations on loans pertaining to high priority projects of bank's borrowers falling due within a period not exceeding ten (10) years b. Investment in equities of 70% 14% p.a. affiliates/subsidiaries/ other firms as well as in high grade securities The maximum bank lending rate shall be the effective rate, inclusive of service and other charges, and shall apply only the rediscounted portion thereof. SECTION 6. Maturity Period The maturities of the loans or advances from the Central bank shall be as follows: Collateral Maturity Period a. Pledge or assignment or payments, installments or amortizations covering high priority projects: 1 For working capital requirements Not exceed three (3) years; and/or refinancing thereof; non-renewable 2 For acquisition of fixed assets, Not to exceed ten (10) years; development/expansion of existing non-renewable projects and/or refinancing b. Shares of stock of subsidiaries/ Not to exceed seven (7) years; affiliates/other firms non- renewable c. High grade securities Not to exceed one (1) year SECTION 7. Other Terms and Conditions a. Availment maturing within one (1) year by unibanks, DBP and LBP of this credit facility shall be chargeable against their respective unutilized basic rediscounting ceiling; b. Proceeds of advances under this facility shall not be utilized to finance the repayment of foreign exchange obligations or to service exchange requirements of projects except in case of the importation of capital equipment which shall be limited to an amount equivalent to $1 million. LexLib c. Rediscounted loans to eligible projects shall be subject to the single borrower limitation under Section 23 of R.A. 336, as amended; d. Syndicated loans shall be acceptable only if the participating banks are eligible under this program; and e. The evaluation of the project financed shall be the responsibility of the lending bank. Additional conditions may be authorized by the CB to be imposed by borrowing banks as circumstances warrant, to ensure the continuing financial viability of CB-assisted projects. SECTION 8. Repayments with Central Bank The equivalent loan values of the assigned payments, installments or amortizations due plus accrued interest shall be automatically debited against the demand deposit account of the borrowing bank with the Central Bank not later than the tenth (10th) day of the month following the scheduled payment date. Likewise, the loan values of the collateral promissory notes for advances against the aforementioned investments in equities or high grade shares shall be automatically debited against the bank's demand deposit account upon their maturities. The corresponding loan value of collections received by the bank before the due dates of the assigned payments, installments or amortizations and on maturities of the promissory notes as well as any cash dividends on the pledged shares of stock shall be remitted immediately to the Department of Loans and Credit, Central Bank, to be applied in partial/full payment of its outstanding obligations. SECTION 9. Effectivity These guidelines shall take effect immediately. (SGD.) JAIME C. LAYA Governor