QuestionsQuestions (BSP CIRCULAR LETTER, JUNE 21, 2002)
Before foreclosing or acquiring any property in settlement of loans and other advances, the property must be properly appraised to determine its true economic value.
If the total amount to be booked as ROPOA exceeds PHP 5,000,000, the appraisal must be conducted by an independent appraiser acceptable to the BSP.
The acquired property shall be recorded at the balance of the loan (principal plus booked accrued interest receivable for time loans, or principal less unamortized income for bills discounted) or at the bid/purchase price, whichever is lower.
The bank must set up an allowance for probable losses equivalent to the excess of the amount booked over the appraised value.
Appraisal must be made at least every other year.
Immediate re-appraisal is required on ROPOAs that materially decline in value.
Examples of “Loss” requiring 100% reserves include: (1) foreclosure expenses and other charges included in book value (excluding qualifying non-refundable capital gains tax and documentary stamp tax paid if included in book value); (2) the excess of book value over appraised value; (3) property whose title is definitely lost to a third party or is being contested in court; and (4) property where usufruct rights are not practicable/possible (e.g., eroded by a river or similar circumstances).
Valuation reserves are reckoned from the expiration of the statutory redemption period for foreclosure or from perfection of contract if acquired through dation in payment.
End of 6th year: annual provision 10% with accumulated reserve 10%; 7th year: annual 10% with accumulated 20%; 8th: annual 10% accumulated 30%; 9th: annual 10% accumulated 40%; 10th: annual 10% accumulated 50%.
Personal property considered “Loss” requiring 100% reserves includes: (1) property not sold for more than three (3) years from acquisition; (2) property that is worthless or not salable; (3) property whose title is lost or is being contested in court; (4) foreclosure expenses and other charges included in book value; and (5) the excess of book value over its appraised or realizable value.
They are reckoned from the date of foreclosure or from the perfection of the contract if acquired through dation in payment.
1st year: 50% annual provision, 50% accumulated; 2nd year: 30% annual provision, 80% accumulated; 3rd year: 20% annual provision, 100% accumulated.
For real estate: from perfection of contract. For personal property: from perfection of contract (instead of foreclosure date).
Banks are required to strictly comply with the BSP rules and regulations on ROPOA.
It affects the initial book value of ROPOA; if the booked amount ends up exceeding the appraised value, it triggers the requirement to set up an allowance for probable losses.