Interest on Loans and Yield on Purchases of Receivables

February 27, 1981

CBP CIRCULAR NO. 783-81

INTEREST ON LOANS AND YIELD ON PURCHASES OF RECEIVABLES

The Monetary Board, in its Resolution No. 388 dated February 27, 1981, approved the amendment, consolidation and reissuance of the regulations governing interest on loans or forbearance of money, goods or credits and yield on purchases of receivables.

ARTICLE I

Interest on Loans

SECTION 1. The effective rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits with a maturity of seven hundred thirty (730) days or less, shall not exceed sixteen per cent (16%) per annum for secured loans and eighteen per cent (18%) per annum for unsecured loans, as defined respectively by Sections 2 and 3 of the Usury Law, as amended.

SECTION 2. The interest rate on a loan or forbearance of any money, goods or credits with a maturity of more than seven hundred thirty (730) days shall not be subject to any ceiling.

SECTION 3. The rate of interest on a loan or forbearance subject to a fixed rate of interest may be stated as single rate or on the basis of the current reference rate mentioned in Section 5 of this Circular on the date the loan or forbearance is granted plus a margin as may be agreed upon by the parties.

SECTION 4. The rate of interest on a floating rate loan during each interest period shall be stated as the current reference rate on the first day of an interest period plus a margin as may be agreed upon by the parties.

SECTION 5. The reference rate shall be determined and announced by the Central Bank every month and shall be based on the weighted average of the interest rates paid by the five banks with the largest volume of business transacted during the immediately preceding thirty (30) days on time deposits with maturities of more than seven hundred thirty (730) days.

SECTION 6. Where the loan agreement provides a floating rate of interest system, the interest period, which shall be each period of time for which the rate of interest is fixed in this Circular, shall be three (3) or six (6) months, upon mutual agreement of the parties.

ARTICLE II

Yield on Purchase of Receivables

SECTION 7. The effective rate of yield, including commissions, premiums, fees and other charges, from the purchase of receivables and other obligations with maturities of seven hundred thirty (730) days or less, that may be charged or received by banks authorized to engage in quasi-banking functions or by non-bank financial intermediaries authorized to engage in quasi-banking functions, shall not exceed eighteen per cent (18%) per annum.

SECTION 8. The yield from the purchase of receivables and other obligations with maturities of more than seven hundred thirty (730) days, that may be charged or received by banks authorized to engage in quasi-banking functions or by non-bank financial intermediaries authorized to engage in quasi-banking functions, shall not be subject to any ceiling.

ARTICLE III

General Provisions

SECTION 9. For purposes of Sections 1 and 7 of this Circular, effective rate shall mean the price paid for the use of money expressed as a percentage, on an annual basis, of the amount actually received. In case the principal is amortized, the rate shall be computed on the basis of the outstanding balance. The computation assumes that interest is paid at maturity, or at the end of one year, if the maturity of the loan exceeds one year.

SECTION 10. The maximum rates under Sections 1 and 7 of this Circular include commissions, premiums, fees and other similar charges, but exclude registration fees, mortgage redemption insurance, documentary and science taxes and such other expenses independently determinable and which do not accrue to the lending entity, its affiliates/subsidiaries, and their personnel.

SECTION 11. This Circular repeals Circular No. 504, supersedes Circular Nos. 705, 721 and 755 and repeals or amends all other Circulars and regulations inconsistent herewith.

SECTION 12. This Circular shall take effect on July 1, 1981.

For the Monetary Board:

(SGD.) JAIME C. LAYAGovernorCentral Bank of the Philippines