Question & AnswerQ&A (BSP CIRCULAR LETTER, JUNE 21, 2002)
BSP Circular No. 306 provides the rules and regulations on the acquiring, appraisal, valuation, and recording of Real and Other Properties Owned or Acquired (ROPOA) by banks, ensuring proper accounting and risk management.
The property must be properly appraised to determine its true economic value. If the total amount to be booked as ROPOA exceeds P5 million, the appraisal must be conducted by an independent appraiser acceptable to the Bangko Sentral ng Pilipinas.
The property shall be recorded at the balance of the loan (including principal and booked accrued interest or less unamortized income) or the bid/purchase price, whichever is lower. If the booked amount exceeds the appraised value, an allowance for probable losses equal to the excess must be set up.
An appraisal must be made at least every other year. However, immediate re-appraisal shall be conducted on ROPOAs that materially decline in value.
Properties that are foreclosure expenses and other charges (excluding non-refundable capital gains tax and documentary stamp tax), excess of book value over appraised value, properties whose title is lost or being contested in court, and properties where usufruct rights are not practicable (e.g., eroded by river).
From the 6th year to the 10th year after redemption or contract perfection, 10% annual provisions are required, accumulating to 50% reserve by the 10th year.
Personal properties not sold for more than three years from acquisition, worthless or not salable property, property with lost or contested title, foreclosure expenses included in book value, and excess of book value over appraised or realizable value.
From the date of foreclosure or contract perfection, 50% reserve must be provided in the 1st year, 30% in the 2nd year, and 20% in the 3rd year, totaling 100% accumulated reserve.
Banks must set up an allowance for probable losses equivalent to the excess amount between the booked value and the appraised value.
Banks are required to strictly comply with the rules set forth in BSP Circular No. 306 to maintain sound banking operations, proper risk management, and accurate financial reporting.