Domestic Stand-by L/Cs

March 25, 1976 CBP MEMORANDUM TO : All Commercial Banks SUBJECT : Domestic Stand-by L/Cs The Monetary Board, in its Resolution No. 318 dated February 13, 1976, approved the following guidelines under which domestic stand-by letters of credit may be issued or used in transactions other than those involving movement of goods: dctai a. The bank's obligation to pay shall be either unconditional (as against presentation of clean draft) or conditional only upon the presentation of documents and not upon actual existence or non-existence of facts; i.e., the bank must not be called upon to determine disputed questions of fact or law; b. The bank's obligation shall be limited to a fixed maximum amount; c. The bank's obligation shall have an express expiration date; d. The stand-by of credit accommodation shall not violate, nor shall drawings against it result in violation of, any law or existing CB directives, rules and regulations; provided, however, that the total amount of the L/C to be opened shall not exceed an amount equivalent to fifteen per cent (15%) of net worth; and provided further that: i. If the party who opened the L/C is a director, officer or stockholder of the issuing bank, the stand-by L/C accommodation shall not exceed an amount equivalent to the ceiling on such loans as provided under Section 83 of R.A. No. 337, as amended, and implemented by Circular No. 357, whichever is lower; and ii. Any amount in excess of the foregoing ceilings shall require the prior approval of the Central Bank; c. The party who opened the stand-by L/C or the ultimate borrower, before and during the life of the L/C, shall not have any past due obligation with the issuing bank; otherwise, the latter shall revoke said L/C; f. The stand-by L/C shall be fully secured and such security shall be limited to real estate mortgages and/or bonds/securities either guaranteed or issued by the Central Bank or the National Government except those in favor of the Philippine Government against advances made by the Government to guarantee the performance completion of vital government projects; g. Drawings shall be honored only upon failure of the party who opened the L/C (borrower) to pay the amortization(s) due and upon presentation of a written certificate to this effect; and h. The party who opened the L/C (borrower) must have an unqualified obligation to reimburse the bank on the same condition as the bank has paid. (SGD.) JAIME C. LAYA Deputy Governor