Classification of Sales Contract Receivables

Monetary Board Resolution No. 329 authorizes the amendment of bank and non-bank financial institution regulations through the addition of specific provisions.
Section X612 of the Manual of Regulations for Banks defines and sets classification rules for Sales Contract Receivables.
Section 4628Q of the Manual of Regulations for Non-Bank Financial Institutions adopts the same classification concept and standards.
The classification rules operate within the Manual of Regulations regime governing asset classification.

Section X612 (Banks) and Section 4628Q (Non-Banks) define Sales Contract Receivables as the balance of the selling price of assets owned and/or acquired under a plan of settlement.
Title to the covered assets under a sales contract is transferred to the buyer only upon full payment of the agreed selling price.
The defined receivable is treated as part of the seller-financing settlement arrangement where payment triggers transfer of title.

Section X612 (Banks) and Section 4628Q (Non-Banks) provide that Sales Contract Receivables are considered performing assets when all enumerated requirements are met.
Performing status applies when there is a down-payment of at least twenty percent (20%) of the agreed selling price, or, in its absence, installment payments on the principal have already amounted to at least twenty percent (20%) of the agreed selling price.
Performing status applies when payment of principal is made in equal installments or in diminishing amounts and with maximum intervals of one (1) year.
Performing status applies when any grace period for payment of principal is not more than two (2) years.
Performing status applies when there is no installment payment in arrear on either principal or interest.

Section X612 (Banks) and Section 4628Q (Non-Banks) require that a Sales Contract Receivable is automatically classified “Substandard” and considered non-performing upon non-payment of any amortization due.
The rule is automatic upon non-payment of any amortization due, covering both principal and/or interest amortizations due under the arrangement.

Section X612 (Banks) and Section 4628Q (Non-Banks) allow a Sales Contract Receivable previously classified Substandard and considered non-performing to be upgraded/restored.
Restoration to unclassified and/or performing status requires a satisfactory track record of at least three (3) consecutive payments of the required amortization of principal and/or interest.
The three consecutive payments must cover the required amortization of principal and/or interest as applicable to the receivable’s required amortization.