Question & AnswerQ&A (BSP CIRCULAR NO. 110)
Section 14(5) of Republic Act No. 7845 prohibits government funds from being invested in non-government securities, money market placements, similar investments, or deposited in private banking institutions, with some exceptions subject to Monetary Board approval.
The Bangko Sentral shall be the official depository of the Government, its political subdivisions and instrumentalities, and government-owned or controlled corporations. Their cash balances should be deposited with the Bangko Sentral, with only minimum working balances held by certain banks as designated by the Monetary Board.
Private banks may only accept government deposits with prior approval by the Monetary Board and must comply with guidelines established by the Board. Without such approval, they are prohibited from accepting government funds.
Thrift banks under RA 7906 and rural banks under RA 7353 may act as official depositories of national, municipal, city, or provincial funds located in the municipality, city, or province where the bank is situated, subject to guidelines by the Monetary Board.
The aggregate amount held by a private bank may not exceed 200% of its net worth. Deposits must be limited to minimum working balances except where approved to hold excess amounts correlating to outstanding loan obligations.
Banks must submit quarterly reports of their aggregate government deposits in the form prescribed by the Bangko Sentral, within five banking days after the end of every reference month.
Sanctions include debiting the bank’s deposit account at the Bangko Sentral by the unauthorized amount, withdrawal of authority to accept government deposits, cancellation or temporary disqualification, and fines imposed on certifying officers for false certifications.
It refers to corporations created by special laws, excluding government financial institutions like the Development Bank of the Philippines, Land Bank, and Al-Amanah Islamic Investment Bank, as well as corporations created under the Corporation Code or private corporations taken over by government-owned or controlled corporations.
The bank must meet several conditions including a sound net worth-to-risk asset ratio, compliance with credit ceilings, minimum capital requirements, no losses in the last six months, no significant reserve deficiencies, low past due loans, sound business conduct, corrected past violations, adequate internal controls, no outstanding obligations to government entities, and membership in the Philippine Deposit Insurance Corporation.
Minimum working balances refer to the minimum amounts necessary to enable government entities to transact business efficiently and effectively, as determined by the Department of Finance.