Question & AnswerQ&A (CIRCULAR NO. 1001)
The total amount of loans, credit accommodations, and guarantees that may be extended by a bank to any person, partnership, association, corporation, or other entity shall at no time exceed twenty-five percent (25%) of the net worth of such bank, as provided in Section X303 of the MORB.
The credit exposure limits may be increased for certain circumstances as stated in the amended provisions, including but not limited to project finance loans related to priority government projects, subject to prudential controls and guidelines on managing large exposures and credit risk concentrations.
Loans, credit accommodations, and guarantees granted by a bank to a special purpose entity (SPE) for project finance shall be subject to a separate individual limit of twenty-five percent (25%) of the net worth of the lending bank, provided the projects are aligned with government priority programs and prudential controls are in place.
Standard prudential controls may include the pledge of borrower's shares, assignment of the borrower's assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents to safeguard creditors' interests.
Total outstanding loans, other credit accommodations, and guarantees to each of the bank's subsidiaries and affiliates shall not exceed ten percent (10%) of the net worth of the lending bank, except for project finance loans which have a separate individual limit of twenty-five percent (25%) of the net worth, subject to certain conditions such as limits on the unsecured portion, alignment with government priority projects, and prudential safeguards.
The conditions include that the unsecured portion shall not exceed twelve and one-half percent (12.5%) of net worth when operational; projects must align with government priorities; standard prudential controls are in place; total project finance exposures are considered for risk management; subsidiaries or affiliates are not related interests of directors, officers, and stockholders; and aggregate limits for related party transactions are complied with.
Credit exposures considered non-risk, such as loans secured by government obligations, loans guaranteed by the government, loans secured by US Treasury Notes, loans covered by hold-out or assignment of deposits, loans under letters of credit, loans to foreign embassies considered as loans to their central governments, among others approved by the Monetary Board.
The lending bank or QB must consider its total project finance exposures in complying with the relevant subsections of the MORB/MORNBFI on guidelines for large exposures and credit risk concentrations (e.g., Subsections X301.6 and X178.9 for banks, and 4301Q.6 and 4178Q.9 for QBs).
The Circular shall take effect fifteen (15) calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.
This separate limit of twenty-five percent (25%) of the bank's net worth for project finance loans allows banks to support priority government projects without breaching the general credit exposure limit for single borrowers, while still maintaining prudential safeguards.