Legal basis and related agreements
- BSP Circular No. 1277 is issued pursuant to Monetary Board Resolution No. 693 dated July 20, 1990.
- The guidelines cover Qualifying Loans under the Second Amendment dated January 22, 1990 to the Credit Agreement dated May 20, 1985.
- The arrangement is tied to the Credit Agreement among the Central Bank of the Philippines (as Borrower), the Republic of the Philippines (as Guarantor), Manufacturers Hanover Trust Company (as Agent), and participating financial institutions.
- The approval framework is tied to the New Money Agreement, referred to as the “New Money Agreement” or “Agreement.”
- The guidelines require compliance with Circular No. 1232 for specific approvals/clearances involving ICC/NEDA Board.
Purpose and approval policy
- Qualifying Loans must be approved prior to their advancement under the new money framework.
- Public sector applications must secure prior approval-in-principle from the Central Bank even before commencement of actual negotiations.
- Approval of Qualifying Loan proposals is governed by evaluation rules that follow Circular No. 1232 for purpose and credit terms, subject to added constraints in these guidelines.
Scope: who may borrow and what counts
- A Qualifying Loan is any loan by a Relending Bank to either a Philippine Private Sector Borrower or a Philippine Public Sector Borrower that meets all enumerated criteria.
- A Philippine Public Sector Borrower is any entity with more than 50% beneficial ownership held by the National Government and/or any of its agencies and instrumentalities.
- A Philippine Private Sector Borrower is any Philippine borrower other than a Philippine public sector borrower.
- A Relending Advance is an advance by a Relending Bank to the Borrower pursuant to Section 2.09 of the Agreement.
- Qualifying Loans are evaluated under specific eligibility categories for project financing, and they must follow currency, maturity/prepayment, and portfolio-concentration limits stated in the definition.
Definition: Qualifying Loan criteria
- A Qualifying Loan must be funded or to be funded with the proceeds of a Relending Advance withdrawn pursuant to Section 2.10(c) of the Agreement.
- No payment of principal on the Qualifying Loan (including schedule mandatory prepayment) is scheduled earlier than 366 days after the disbursement date by the relending bank to the Philippine borrower.
- After giving effect to the loan, the relending bank’s aggregate outstanding principal amount of loans made to all Philippine private sector borrowers with proceeds of relending advances must not exceed 50% of:
- (x) the initial Relending Advance Commitment, plus
- (y) adjustments for assignments by assignor/assignee banks as provided in the definition, minus
- (z) adjustments for assignments made to any assignee as provided in the definition.
- After giving effect to the loan, the aggregate principal amount of Qualifying Loans scheduled to be disbursed during the calendar year of disbursement must not exceed 10% of:
- (y) the Bond Commitments and 1989 Advance Commitments, plus
- (z) without duplication, the Relending Advance Commitments,
- and if it would exceed that threshold, the loan requires prior written approval of the Borrower.
- All terms of the Qualifying Loan—including pricing, amortization (subject to the 366-day parameters), disbursement schedule, use of proceeds, covenants, collateral security, and guarantees—are determined by agreement between the relending bank and the Philippine borrower.
Substantive eligibility rules and project coverage
- Qualifying Loans are evaluated in accordance with Circular No. 1232 for purpose and credit terms.
- Qualifying Loans must be payable in not less than 366 days.
- Projects eligible for financing are limited to:
- Export-oriented projects registered with BOI, CB or EPZA;
- Projects listed in the Annual Investment Priorities Plan;
- Projects listed in the Medium-Term Public Investment Program (MTPIP);
- Other projects specifically authorized by Congress for financing through foreign loans.
- Approval/clearance requirements relating to ICC/NEDA Board under Circular No. 1232 must be complied with.
- Qualifying Loans must be made and repaid in the pertinent Relending Advance Currency, which may be U.S. Dollars, Deutsche Mark or Japanese Yen.
- With prior Central Bank approval, a Qualifying Loan may be made in another currency, but that currency must still be a Relending Advance Currency.
- The foreign exchange risk involved in conversion is not assumed by the Central Bank, and any additional cost arising from these transactions is not for the account of the Central Bank.
Currency, maturity, and prepayment limits
- No prepayment of the Qualifying Loan may be made earlier than 366 days from the final disbursement date.
- Any payment or prepayment of principal of a loan that is subject to re-entry under the Agreement must be delivered to the Central Bank.
- Prior Central Bank approval is required for specified changes and transactions connected to the loan’s lifecycle and structure.
Prior approvals for related transactions
- Prior Central Bank approval is required for:
- Changes in the previously approved disbursement schedule;
- Prepayment of the Qualifying Loan or a portion thereof;
- Assignment of the Qualifying Loan by the Relending Bank.
Application process and submission requirements
- A Qualifying Loan is subject to prior approval of the Central Bank through the Management of External Debt Department (MEDD).
- In the case of public sector loans, prior approval-in-principle must be obtained even before commencement of actual negotiations.
- Applications must be filed using:
- CBP-MEDD-1 (for public sector) (ANNEX A);
- CBP-MEDD 1A (for private sector) (ANNEX B).
- The financial institution extending the Qualifying Loan is a Relending Bank and must endorse the application using Annex C.
- Applications submitted by relending banks must be accompanied by the specified documentary requirements.
- Approved Qualifying Loans remain subject to the usual registration requirements of the Central Bank.
Evaluation priority and disbursement reconciliation
- Applications are considered on a strictly first come-first-served basis reckoned from the time the basic documentary requirements have been fully complied with.
- For reconciliation of accounts, each request by the Relending Bank for actual disbursement from the Relending Advance must be made using the prescribed Relending Advance Withdrawal Notice Form (Annex D).
- Each disbursement request must be accompanied, among others, by a duly accomplished DRD Relending Form 1 — Status Report on the Relending Advances and Qualifying Loans (Annex E).
Compliance and penalties
- No penalties, sanctions, fines, or administrative consequences are established in these guidelines.
Definitions and operation date
- These guidelines establish the capitalized terms Qualifying Loan, Relending Advance, Philippine Public Sector Borrower, and Philippine Private Sector Borrower.
- The circular is Adopted: 14 March 1991 and signed by the Governor.