When emergency loans may be availed
- An emergency loan or advance may be availed of in periods of financial panic, meaning periods of national and/or local emergency characterized or accompanied by imminent financial panic within the financial system that directly threatens monetary and banking stability (e.g., extraordinary heavy withdrawals of deposits for successive days).
- An emergency loan or advance may be availed of during normal periods when a particular bank experiences serious liquidity pressures brought about by unforeseen events, or foreseeable events that could not be prevented by the bank concerned.
- During normal periods, an emergency loan or advance may be granted only after the Monetary Board ascertains that the bank is not insolvent.
Application filing and required submissions
- No particular form is required to apply for an emergency loan or advance.
- The application must be filed with the Department of Loans and Credit (DLC).
- A copy must be furnished simultaneously to the appropriate Supervision and Examination Department.
- The application must state the justifying reasons and other details showing the emergency or precarious financial condition being experienced by the bank, and must include a listing of the collaterals offered.
- The following must be submitted together with the application:
- A Board of Directors resolution authorizing the availment of an emergency loan or advance from the Bangko Sentral, signifying the bank’s commitment to comply with the guidelines and any terms and conditions imposed by the Monetary Board, and designating officers authorized to sign required documents.
- Documents of title and/or evidences of ownership of the collaterals offered.
- A Board of Directors resolution authorizing the Bangko Sentral to evaluate other assets available for collateral purposes if subsequent tranches are applied for, accompanied by a certification of the bank’s external auditor that the said assets are good and available for collateral purposes.
- Prior to the release of the second and subsequent tranches, principal stockholders of the applicant bank must submit:
- An acceptable undertaking to indemnify and hold harmless from suit a conservator whose appointment the Monetary Board may find necessary at any time.
- The documents of title and/or evidences of ownership of collaterals for the amount applied for release, and any other acceptable security that, in the judgment of the Monetary Board, would be adequate to supplement the assets tendered to collateralize the subsequent tranche.
Maximum amount and security limits
- The maximum amount of an emergency loan or advance is limited to the amount needed by the applicant bank to overcome the emergency or financial predicament or 50% of the applicant bank’s total deposits and deposit substitutes as of the date of application, whichever is lower.
- In no case may the maximum amount exceed the loan values of the collaterals submitted, as determined by the Bangko Sentral.
Release mechanics and tranche voting
- The grant of any emergency loan or advance must bear the concurrent vote of at least five (5) members of the Monetary Board.
- Emergency loan or advance proceeds must be released in two (2) or more tranches as the need of the bank arises.
- Authorization for release of the second and subsequent tranches requires approval by the Monetary Board by a vote of at least five (5) of its members.
- The amount of the first tranche must not exceed 25% of the bank’s total deposits and deposit substitutes.
- The first tranche must be released only after required securities and collateral documents have been submitted and duly notarized.
- A first-tranche amount greater than 25% may be released upon request of the applicant bank if the Monetary Board determines the emergency circumstances warrant it and the amount is adequately secured by:
- Applicable loan values of government securities, and
- Unencumbered first class collaterals approved by the Monetary Board,
- Plus an acceptable undertaking by the principal stockholders to indemnify and hold harmless from suit a conservator whose appointment the Monetary Board may find necessary at any time.
- Release of the second and subsequent tranches must be effected only after submission of required securities and duly accomplished collateral documents and upon compliance with the requirements in the guideline’s application/technical submission items.
Acceptable collateral types and costs
- For the first tranche, the amount must be secured by government securities to the extent of their applicable loan values and/or by unencumbered real estate and other first-class collaterals.
- For second and subsequent tranches, in addition to government securities and unencumbered first-class collaterals, other assets previously certified by the bank’s external auditor as good and available for collateral purposes may be considered, as evaluated by the Bangko Sentral.
- The applicant bank must bear all collateralization expenses, including registration fees and documentary stamps, among others.
Interest rate, term, and documents
- The interest rate charged on emergency loans or advances is the average 91-day Treasury Bill rate as of the last auction immediately preceding the release of the tranche.
- The term of any emergency loan or advance must not exceed one (1) year.
- Before release of any tranche, the applicant bank must comply with other documentary requirements that may be required by the Department of Loans and Credit, such as a promissory note in favor of the Bangko Sentral.
General compliance duties and consequences
- A bank receiving an emergency loan or advance must comply with the following while the loan or any portion is outstanding:
- The bank must not, without prior authorization of the Monetary Board, expand its outstanding loans or investments as of the date of application, except for investments in government securities.
- The bank must not declare cash dividends.
- The bank must not grant new loans to directors, officers, stockholders, and their related interests and/or affiliates/subsidiaries.
- The Bangko Sentral may designate a comptroller, assisted by examiners, to oversee the bank’s operations under terms of reference determined by the Governor.
- Any collection received on loan accounts, or proceeds from the sale of properties assigned/mortgaged to the Bangko Sentral, must be held in trust for, and immediately remitted to, the Bangko Sentral as partial/full payment of the bank’s outstanding emergency loan or advance and corresponding accrued interests.
- The Monetary Board may impose other terms and conditions.
- Any non-compliance with the listed provisions automatically makes the emergency loan or advance due and demandable.
- Non-compliance is sufficient cause for the Bangko Sentral to stop further releases against the bank’s approved emergency loan or advance, without prejudice to any further action the Bangko Sentral may decide to take under the New Central Bank Act.
Approval, adoption date, and effectivity
- The guidelines were adopted on 25 July 1994 through Monetary Board Resolution No. 459 dated May 25, 1994.
- The guidelines were approved by the Monetary Board and issued by the Governor, Gabriel C. Singson.
- The circular is designated BSP Circular No. 35 (s. 1994), July 25, 1994 and appears in NAR Vol. 5 No. 3 (July–September 1994).