Question & AnswerQ&A (BSP CIRCULAR LETTER)
The required allowance for probable losses on loan accounts classified as 'Substandard-Secured' ranges from 6% to 25% as prescribed under Section 3 of Circular No. 247 dated June 2, 2000, with specific guidelines outlined in the BSP Circular Letter dated April 30, 2001.
Loans secured by real estate property must (a) not be restructured loans; (b) be fully secured by real estate property with a loan value of up to 70% of the appraised property value; (c) have an appraisal conducted within one year; and (d) if the loan exceeds certain benchmarks (P5 million for commercial banks, P1 million for thrift banks, and P500,000 for rural banks), the appraisal must be conducted by an independent appraiser.
The loan benchmarks are: P5 million for commercial banks, P1 million for thrift banks, and P500,000 for rural banks. If the real estate loan exceeds these amounts, an independent appraiser must conduct the property appraisal.
Loans secured by first class shares of stocks should have a loan value of 50% of the prevailing market value as of the date of review, following the definitions in Circular No. 228 dated February 29, 2000.
All loans classified as 'Substandard-Secured' without support of the latest Audited Financial Statements or Income Tax Returns shall be provided with a 25% allowance for probable losses.
All other loans classified as 'Substandard-Secured' that do not meet the specific conditions for 12.5% allowance or any approved 6% allowance shall be provided with a 25% allowance for probable losses.
Yes, loans classified as 'Substandard-Secured' may be provided with a 6% allowance for probable losses, but such provisioning must be justified and submitted to the Bangko Sentral for approval.
This Circular Letter took effect immediately upon its adoption on April 30, 2001.