QuestionsQuestions (BSP CIRCULAR NO. 35)
The legal basis is Section 84 of R.A. No. 7653 (New Central Bank Act), which governs the grant of emergency loans or advances to banking institutions.
It is a discretionary credit facility intended to help a bank experiencing serious liquidity problems arising from causes not attributable to or beyond the control of bank management; it is only a temporary remedial measure.
Because Section 84 of R.A. No. 7653 provides that no emergency loan or advance may be granted except on a fully secured basis.
When there are periods of national and/or local emergency characterized or accompanied by imminent financial panic within the financial system that directly threaten monetary and banking stability (e.g., extraordinary heavy withdrawals of deposits for successive days).
When a particular bank experiences serious liquidity pressures due to unforeseen events, or foreseeable events that could not be prevented by the bank concerned, and only after the Monetary Board ascertains that the bank is not insolvent.
The application is filed with the Department of Loans and Credit (DLC), with a simultaneous copy furnished to the appropriate Supervision and Examination Department.
The justifying reasons and other details showing the emergency or precarious financial condition, and a listing of the collaterals offered.
A resolution of the bank’s Board of Directors authorizing availment of the emergency loan/advance from the BSP, committing the bank to comply with the Guidelines and terms/conditions imposed by the Monetary Board, and designating officers authorized to sign documents.
A Board resolution authorizing BSP to evaluate other assets for possible collateral purposes should subsequent tranches be requested, accompanied by an external auditor’s certification that such assets are good and available for collateral purposes.
An acceptable undertaking to indemnify and hold harmless a conservator should the Monetary Board appoint one; plus documents of title/evidence of ownership of the collaterals for the tranche amount and, if necessary, other acceptable security deemed adequate by the Monetary Board.
It is limited to the amount needed to overcome the emergency or financial predicament, or 50% of total deposits and deposit substitutes as of the application date, whichever is lower—provided it never exceeds the loan values of the collaterals submitted as determined by the BSP.
It requires the concurrent vote of at least five (5) members of the Monetary Board.
Released in two (2) or more tranches as the need arises. Release of the second and subsequent tranches requires Monetary Board authorization by at least five (5) members.
The first tranche shall not exceed 25% of total deposits and deposit substitutes and is released only after required notarized securities/collateral documents are submitted. A greater amount may be released upon request if warranted by the emergency and adequately secured by applicable loan values of government securities and unencumbered first-class collaterals approved by the Monetary Board, with principal stockholders furnishing the required indemnity undertaking.
First tranche: government securities (to the extent of applicable loan values) and/or unencumbered real estate and other first-class collaterals. Second/subsequent tranches: in addition to the above, other assets previously certified by the bank’s external auditor as good and available for collateral purposes, evaluated by the BSP.
The interest rate shall be the average 91-day Treasury Bill rate as of the last auction immediately preceding the release of the tranche.
Not exceed one (1) year.
Examples: (1) no expansion of outstanding loans or investments as of application date without Monetary Board prior authorization (except government securities), (2) no declaration of cash dividends, (3) no new loans to directors/officers/stockholders and related interests/affiliates/subsidiaries. Consequence: non-compliance automatically makes the emergency loan/advance due and demandable and is sufficient cause for BSP to stop further releases, without prejudice to further actions under the New Central Bank Act.