BSP Guidelines on Rediscounting Facility

Legal basis and supersession rules

The guidelines are issued pursuant to Sections 81, 82 (a), (b), and (c) of Republic Act No. 7653 (The New Central Bank Act).
The guiding principle on rediscounts, discounts, loans, and advances is to influence the volume of credit consistent with the objective of price stability.
The Circular supersedes existing provisions of Sections X 268 and X269 of the Manual of Regulations for Banks (MORB).
The superseded MORB provisions are revised under the Circular through updated guidelines for (i) the rediscounting line and (ii) rediscounting availments.

Policy, purpose, and controlling principle

BSP rediscounting is governed by the principle that rediscounts, discounts, loans, and advances must be used to influence the volume of credit.
The influence on credit volume must remain consistent with the objective of price stability.
Rediscounting lines and rediscounting availments are structured to manage credit risk through the Credit Information System (CRIS) and continuing compliance requirements.

Rediscounting line framework (Sec. X268)

Banks operate BSP rediscounting lines under Sec. X268 and the specific rules on CRIS, application procedure, approval/renewal, amount, and term.
Rediscounting availments are drawn against an approved rediscounting line based on the bank’s total credit score under CRIS (Sec. X268.1).
CRIS scoring and periodic review are required to maximize effectiveness in managing the BSP’s credit risk (Sec. X268.1).

CRIS scoring and review requirements

Sec. X268.1 provides that a bank’s rediscounting line is based on its total credit score under CRIS.
CRIS scoring considers:
- Management and Risk Assessment:
  - Management
  - Risk Management System
- Financial Indicators:
  - Capital Adequacy
  - Asset Quality
  - Profitability
  - Liquidity
- Credit Experience:
  - Repayment record
  - Compliance with other terms and conditions
CRIS guidelines must be reviewed on a regular basis to maximize effectiveness in managing credit risk.

Application for rediscounting line

Banks applying for a rediscounting line must submit an application in the prescribed form (RL Form No. 1) to the Department of Loans and Credit (DLC) or the Regional Loans and Credit Unit (RLCU).
The application must be accompanied by a Board Resolution:
- duly signed by the bank’s Board of Directors (BOD),
- authorizing the bank to apply for a rediscounting line with the BSP,
- designating at least two officers with positions not lower than a manager or equivalent rank, and
- providing specimen signatures.
The application must include required financial and corporate documents, including:
- Consolidated Statement of Condition as of the end of the quarter immediately preceding the application date, plus the related Statement of Income and Expenses
- Tripartite depository agreement (RL Form No. 2) for banks with designated custodian bank, among the applicant bank, the designated depository bank (with Head Office concurrence), and the DLC or RLCU
- Articles of Incorporation for new applicants only
- Organizational Chart
- List of BOD and Principal Officers (top three Executive Officers), plus Education/Training and Work Experience
- Consolidated Statement of Condition for the preceding four calendar years
- Consolidated Statement of Income and Expenses for the preceding four calendar years
- Annual Report/Audited Financial Statements for the immediately preceding year
For banks applying for microfinance operations, the application must include a copy of the Manual of Operations pertaining to microfinance operations.
The rediscounting line rules require the completeness of the listed documents as part of the application submission process (Sec. X268.2).

Approval/renewal requirements for the line

Approval/renewal of the rediscounting line is subject to the bank’s full compliance with the listed requirements (Sec. X268.3).
The requirements include:
- Minimum capital prescribed under AX106.1 and AX106.2 of the MORB, based on the latest available report submitted to the BSP Supervisory Data Center (SDC)
- Capital adequacy ratio under Sec. X116 of the MORB, based on the latest available report submitted to the SDC, except banks with capital build-up programs approved by the Monetary Board (MB)
- Required loan-loss provisions and valuation reserves as determined in the last examination of the appropriate Supervision and Examination Department (SED) for the required staggered booking approved by the MB
- Required reserves against deposit liabilities/deposit substitutes for two consecutive weeks preceding the application date, based on the latest available SDC report
- An NPL ratio lower or equal to the industry average adjusted upward by two percent (2%), based on the latest report released by the SDC, or the allowable NPL ratio approved by the MB
- Positive Demand Deposit Account (DDA) balance with the BSP as of the application date
- No past due obligations or collateral deficiencies on account of matured notes/unremitted collections/missing collaterals as of the application date
- A CAMELS Composite Rating of three (3) or higher based on the latest general examination of the appropriate SED
- The ratio of past due direct and indirect loans to directors, officers, stock-holders, and their related interests (DOSRI) to aggregate past due loans not more than five percent (5%) on the latest available SDC report
- Investment in bank premises not exceeding fifty percent (50%) of net worth based on the latest available SDC report
- Required liquidity floor for government deposits based on the latest available SDC report
For banks applying for the microfinance facility, additional requirements apply:
- At least one year track record in microfinance
- At least 500 active microfinance borrowers
- Past due ratio for microfinance loans not more than five percent (5%) as of the end of month preceding application
- Ratio of total collections (excluding prepayments) during the preceding 12-month period to total collectibles (past due microfinance loans, beginning plus matured loans/principal amortizations due for the period) not less than ninety-five percent (95%)
- Officers and staff responsible for microcredit operations must have completed:
  - a training course on microfinance; and
  - at least one year experience in microlending activities
The Director of the DLC or RLCU approves the rediscounting line.
After approval, the bank must submit:
- Rediscounting Line Agreement (RL Form No. 3), and
- a Notarized Surety Agreement (RL Form No. 4) executed by the controlling interest (single stockholder, natural or juridical owning more than 50% of voting stocks), obligating the controlling interest jointly and severally with the bank to promptly pay the BSP (its successors/assigns) the bank’s outstanding obligations with the BSP.

Line amount, term, and transition

The rediscounting line is based on the bank’s CRIS score, with the following mapping (Sec. X268.4):
- 90.1 to 100 → 200% of Adjusted Net Worth
- 80.1 to 90.0 → 150% of Adjusted Net Worth
- 70.1 to 80.0 → 125% of Adjusted Net Worth
- 60.1 to 70.0 → 100% of Adjusted Net Worth
- 50.1 to 60.0 → 75% of Adjusted Net Worth
- <50.1 → 50% of Adjusted Net Worth
Banks receiving reduced rediscounting lines due to CRIS operations must be given a one-time six-month transition period to comply with their limits.
The rediscounting line term is one year unless sooner cancelled or revoked by the DLC or RLCU (Sec. X268.5).
The line is renewable annually upon submission of the renewal application at least one quarter before expiry.
If special circumstances or adverse information from the appropriate SED arises, the rediscounting line must be reviewed immediately and adjusted accordingly.

Rediscounting availments and eligibility (Sec. X269)

Banks may avail rediscounting only under Sec. X269, using their approved rediscounting line (Sec. X269.1).
Eligibility requires:
- a positive DDA balance with the BSP, and
- no past due obligations or collateral deficiencies due to matured notes/unremitted collections/missing collaterals as of the application/release date.
The BSP accepts credit instruments covering all economic activities except the prohibited categories in Sec. A X269.2, including:
1. Interbank loans
2. DOSRI loans
3. Extended/Restructured loans
4. Past due loans
5. Unsecured loans
6. Personal consumption loans
7. Loans for capital assets acquisition
8. Loans to non-bank financial institutions
9. Loans funded from borrowings from Government Financial Institutions (GFIs)
For banks with a CAMELS rating of 4, unsecured loans may be accepted for rediscounting if secured by a duly registered mortgage on real estate property of the bank, where 70% of the appraised value equals or exceeds the outstanding balance of the unsecured PN.
Collateral eligibility must comply with Section 82 of R.A. 7653.

Eligible credit categories and required collateral

Commercial credits must have maturities of not more than 180 days from the date of rediscount/discount/acquisition by the BSP and must arise from:
- importation/exportation/purchase/sale of readily saleable goods and products, or their transportation within the Philippines; or
- storing of non-perishable goods and products that are duly insured and deposited under conditions assuring preservation in authorized bonded warehouses or other places approved by the Monetary Board.
Commercial credit collateral must be secured by either:
- a duly registered mortgage on real estate property where 70% of appraised value equals or exceeds the outstanding balance of the PN; or
- duly notarized assignment of proceeds of export or domestic letters of credit, confirmed purchase order or sales contract duly notarized trust receipts; and duly notarized assignment or pledge of quedans, where the value equals or exceeds the outstanding balance of the PN/EB/BX.
Production credits must have maturities of not more than 360 days from the date of rediscount/discount/acquisition and must arise from transactions related to production/processing of agricultural, animal, mineral, industrial, and other products.
Production credit collateral must be secured by a duly registered mortgage on real estate where 70% of appraised value equals or exceeds the outstanding balance of the PN.
Other credits include special credit instruments not covered by commercial/production credits (including microfinance, socialized and low-cost housing papers as defined under HUDCC guidelines, services, and agricultural loans with long gestation period).
For other credits (except microfinance loans), collateral must be secured by:
- a duly registered mortgage on real estate where 70% of appraised value equals or exceeds the outstanding balance of the PN; or
- duly notarized assignment of receivables from service contracts where the value equals or exceeds the outstanding balance of the PN.
For housing papers, the lien or mortgage must cover the property being financed.
PNs/EBs/BX must be endorsed in favor of the BSP and certified as still outstanding at application time by at least two officers authorized by the borrowing bank’s BOD and holding positions not lower than a manager or equivalent rank.

Availment application procedure and documents

Banks availing the rediscounting facility must submit application in the prescribed form (RL Form No. 5-peso / RL Form No. 6-dollar and yen) to the DLC or RLCU (Sec. X269.3).
The application must include:
- Notarized PNs in favor of the BSP ( RL Form No. 7-peso / RL Form No. 8-dollar and yen ), signed by at least two authorized officers of the borrowing bank authorized by the BOD and holding positions not lower than a manager or equivalent rank
- a Rediscount Schedule (RS) (RL Form Nos. 9 to 15) of the PNs/EBs/BX offered as collaterals, grouped by loan type and maturity, certified as still outstanding at application time by the two authorized officers
- in banks with custodianship agreements, acknowledgement by the depository bank that it received in trust for the BSP the collaterals stated in the RS; and
- for banks without custodianship, collateral documents listed in the RS.

Loan value rules and maturity limits

The loan value equals 80% of the outstanding balance of the borrower’s PN/EB/BX, except for the following reductions (Sec. A X269.4):
- Socialized/low-cost housing → 80% of the amount of amortization covering principal payments due within 1 year from date of rediscount
- Agricultural loans with long gestation period → 70% of the outstanding balance of the borrower’s PN
BSP rediscount maturity is governed by the credit type (Sec. A X269.5):
- Commercial credits: 180 days from date of rediscount, but not beyond the maturity date of the PN/BX; special sub-rules apply:
  - Export Packing/Trading/Transport/Quedan/Export Bills:
    - Export Bills At Sight → 15 days from date of purchase
    - Usance EB → Term of draft but not to exceed 60 days from shipment date
- Production credits: 360 days from date of rediscount, but not beyond the maturity date of the PN
- Other credits: 360 days from date of rediscount, but not beyond the maturity date of the PN
- For agricultural loans with long gestation period, the accumulated BSP loan term must not exceed 5 years from the date of original rediscounts or the latest maturity date of the credit instrument, whichever is earlier.

Rediscount and lending rates; damages

Rediscount rates for peso rediscounts are based on the applicable Treasury Bill (TB) rates for the last auction of the preceding week, using the TB rate category corresponding to loan maturity (Sec. A X269.6):
- 90 days or less → 91-day TB rate category
- 91–180 days → 182-day TB rate category
- 181–360 days → 364-day TB rate category
Rediscount rates for dollar and yen rediscounts are based on their respective London Inter-Bank Offered Rate (LIBOR) for the last working day of the immediately preceding month.
Banks may charge lending rates on rediscounted papers without any ceiling.
Banks’ spread levels are monitored by the BSP to ensure consistency with prevailing market rates.
Past due BSP loans and unpaid matured notes incur liquidated damages of 5% per annum.

Release of proceeds and repayment/collections

Proceeds of rediscounting availments are released as follows (Sec. A X269.7):
- Peso rediscounts: credited to the borrowing bank’s demand deposit account or its depository bank’s demand deposit account with the BSP
- Dollar/Yen rediscounts: released through the Treasury Department, BSP, for credit to the borrowing bank’s designated foreign correspondent bank
Repayments and remittance obligations are governed by Sec. A X269.8:
- Peso rediscounts:
  - At maturity, the loan value of the rediscounted PNs/loans plus interest due is automatically debited against the bank’s DDA with the BSP
  - If unaccounted rediscounted PNs and/or underlying collaterals are discovered during credit examination, the loan value is debited against the bank’s DDA with the BSP
- Dollar/Yen rediscounts:
  - The loans are repaid in the same currency they were released
  - The borrowing bank must submit to the DLC or RLCU a copy of its remittance instruction 3 days before maturity of the collateral or loan, covering an amount sufficient to cover total collections or payments of maturing loans
Remittance of total collections must be made no later than 5 banking days from receipt, with the remittance destination depending on the currency:
- Peso rediscounts: remitted to the DLC or RLCU
- Dollar rediscounts: remitted for the account of BSP to the Federal Reserve Bank of New York
- Yen rediscounts: remitted for the account of BSP to the Bank of Tokyo
“Total collections” include principal and interest as follows:
- Principal collections: loan value of principal collected from rediscounted PN/EB/BX plus accrued interest due
- Interest collections: interest collected for BSP (computed based on outstanding balance from time of loan grant/last interest payment to time of payment) or actual interest collection, whichever is lower
- For banks under past due status: total collections include collections on principal, interest, and penalty
- For negotiated EBs: receipt by the rediscounting bank includes actual remittance or credit advice, or book entries made by charging its correspondent bank before receipt of advice
For microfinance loans, collections may be deposited in a Special Savings Deposit Account (SSDA) within 5 banking days from date of collection; the SSDA is maintained by the BSP with the borrowing bank and remitted to the DLC or RLCU on the last banking day of every month; the SSDA earns interest of 1% lower than the 91-day Treasury Bill rate for the last auction date of the preceding month.
The bank must maintain adequate records in its Head Office on collections made by branches.
For arrearages, the BSP undertakes necessary collection measures allowed by law, including foreclosure proceedings against banks with past due loans.

Prohibited transactions and credit examination

Substitution of rediscounted PNs/EBs/BX and underlying collateral real estate properties on outstanding loans with BSP is prohibited without prior BSP approval (Sec. A X269.9).
Renewal of rediscounted promissory notes without remitting payment while the loan released against the rediscounted promissory note remains outstanding with BSP is prohibited without prior BSP approval (Sec. A X269.9).
Acceptance of properties as payment (Dacion En Pago) is prohibited without prior BSP approval (Sec. A X269.9).
The DLC or RLCU must undertake periodic credit examination of borrowing banks to determine:
- compliance with the terms and conditions of their loans; and
- adherence to laws, rules, regulations, and BSP credit policies relating to BSP rediscounting (Sec. A X269.10).

Penalties, sanctions, and suspension effects

The Circular imposes penalties and sanctions on erring banks and their authorized/certifying officers (Sec. A X269.11).
Unremitted collections/delayed remittances:
- incur a penalty of 1/10 of 1% per day of delay on unremitted collections/delayed remittance of collections, commencing the day following the deadline under Sec. A X269.8.2
- penalties do not exceed PHP 30,000.00 per day
- non-monetary sanctions:
  - 1st Offense: Warning
  - 2nd Offense: suspension of the rediscounting line for 15 calendar days from date of written notification; for unremitted collections, suspension starts from date of written notification and ends 15 calendar days after date of payment
  - 3rd Offense: suspension for 30 calendar days from date of written notification and ends 30 calendar days after date of payment
  - 4th Offense: cancellation of the rediscounting line from date of written notification until restored in the next review; in no case is the suspension period less than 90 calendar days
Collaterals with technical deficiency (e.g., expired insurance, unendorsed PN):
- 1st incurrence: Warning
- 2nd incurrence: penalty of 1/10 of 1% per day if deficiency is not corrected within 15 days from the date the bank acknowledged the findings, computed on loan value of the rediscounted PN/EB/BX reckoned from date of grant to date of payment
- 3rd incurrence: monetary penalty of 1/10 of 1% per day from date of grant to date of payment and suspension of rediscounting line for 15 calendar days from date of written notification
- 4th incurrence: monetary penalty of 1/10 of 1% per day and suspension for 30 calendar days from date of written notification; the bank can no longer rectify/correct the deficiency
- 5th incurrence: cancellation of the rediscounting line from date of written notification for the rest of the year; suspension period cannot be less than 90 calendar days
- monetary penalties do not exceed PHP 30,000.00 per day
Other violations:
- misrepresentation, violations of terms and conditions of the PN and/or rediscounting line agreement, and unauthorized withdrawal of collaterals from the depository bank trigger sanctions:
  - 1st Offense: Warning from date of written notification
  - 3rd Offense: suspension of rediscounting line for 30 calendar days
  - 4th Offense: cancellation of the rediscounting line unless restored; suspension period cannot be less than 90 calendar days
- failure to account for missing rediscounted PN or underlying collateral constitutes unauthorized withdrawals of rediscounted PNs and/or underlying collaterals
False/fake/spurious documents:
- discovery that required documents submitted by the bank are false/fake/spurious triggers a fine of PHP 5,000.00 per day from date of release of the loan by the BSP up to the date of payment, imposed separately on the bank and on the authorized/certifying responsible officers.
Interlocking directorship/officership:
- all banks owned or managed by the same owners, stockholders, directors, officers, or family business group are automatically suspended from availment of the rediscounting facility once the rediscounting line of any bank in the same group is suspended, until the suspension of the erring bank is lifted (Sec. A X269.12).