Legal basis and amendments to MORB
- BSP Circular No. 516, s. 2006 amends the provisions of Section 2205 and Appendix 31 of the Manual of Regulations for Banks (MORB) on Check Clearing Rules for Thrift Banks authorized to accept demand deposits and on Rural Banks that are members of the Philippine Clearing House Corporation (PCHC).
- The Circular amends the MORB by revising the wording of Section 2205 and adding a new item under Section 2205.
- The Circular amends Appendix 31, including the provisions on Application for Overnight Clearing Line and the rules on Availments Against the Approved Loan Line.
- The Circular amends Section 7 of the relevant procedure by changing the referenced entity in the loss-settlement provision.
Policy purpose for check clearing lines
- The Circular sets operational and lending rules that support check clearing participation of thrift and rural banks in the PCHC clearing operations.
- The Circular establishes how a participating Thrift Bank or Rural Bank may apply for, secure, and use an Overnight Clearing Line approved by the Monetary Board.
Amended check-clearing participation rule
- Section 2205 (c)(1) is amended so that any Thrift Bank authorized to participate directly in PCHC clearing operations must apply for the required line with the appropriate Supervision and Examination Department (SED) of the BSP.
- The amendment makes the application requirement specific to participation directly in PCHC clearing operations.
New rule on converting overdrafts
- Section 2205 is amended by adding Item (e).
- Any overdraft incurred under Section 102 of Republic Act No. 7653 may be converted into an emergency loan or advance.
- The conversion is allowed only if it complies with the guidelines governing the grant of emergency loans under Subsection X 272.2 of the MORB.
Overnight Clearing Line application requirements
- Appendix 31, Section 3(a) requires that thrift and rural banks authorized to participate directly in PCHC clearing operations file an application for an Overnight Clearing Line with the appropriate SED.
- The application to the SED must be supported by documents under Section 3(b)(1), (2), and (3) (as reflected in the enumerated document requirements).
- The applicant bank must furnish the Department of Loans and Credit (DLC) a copy of the application and required supporting documents:
- a duly notarized secretary’s certificate with a board of directors resolution authorizing the application and designating officers authorized to negotiate, sign, and execute all accessory documents for the loan line;
- a duly signed and notarized Overnight Clearing Line Agreement between the bank and the BSP;
- a duly accomplished Tripartite Memorandum of Agreement among the BSP, the applicant bank, and the PCHC;
- a notarized Surety Agreement executed by controlling stockholders (owning more than 50% of the voting stocks) and every person or group whose stockholdings can elect at least one director, obligating them jointly and severally to pay promptly on maturity or when due the BSP, its successors or assigns, all promissory notes covering availments against the loan line; and
- collateral documents to cover the loan line.
- The loan line is secured using eligible collaterals under the collateral and loan-value limits in Appendix 31, Section 3(c).
Eligible collaterals and loan-value limits
- The loan line must be secured by first class collaterals defined as assets and securities with relatively stable and clearly definable value and/or greater liquidity and free from lien and encumbrances, to the extent of applicable loan values.
- The allowable collateral and maximum loan values are:
- Government securities: up to 80% of the current market value of the securities;
- Commercial Credits (AAA): included under the acceptable collaterals category as listed;
- Unencumbered real estate properties: up to 70% of the appraised value of the land and insured improvements in the name of the bank, as determined by a licensed and independent appraiser acceptable to the BSP according to BSP terms of reference;
- Mortgage credits: up to 70% of the appraised value of the property securing the loan evidenced by negotiable instruments as determined by a licensed and independent appraiser acceptable to the BSP according to BSP terms of reference, or 80% of the outstanding balance of such loan, whichever is lower; and
- Holdout on foreign currency deposits with the BSP: up to 80% of current market value.
- The DLC informs the appropriate SED of the total loan value of eligible collaterals.
- If the application and amendments are in order, the SED recommends to the Monetary Board approval of the bank’s loan line.
Approval, amendment frequency, and collateral substitution
- Once approved, the loan line can be amended at the instance of the applicant bank only once every twelve (12) months.
- The loan line must be equal to at least five (5) percent of the bank’s deposit liabilities as at end of the prior month.
- Any request for amendment of the line is subject to SED recommendation to the Monetary Board.
- The bank is allowed flexibility in changing or substituting collateral, specifically matured government securities.
- The DLC acts on a collateral substitution request, provided the request will not result in an amendment of the approved overnight clearing line.
Rules on availments under the loan line
- The availment against the approved loan line must bear interest at the ninety-one (91)-day Treasury Bill rate of the last auction immediately preceding the availments.
- The loan-value of the collaterals securing the loan line is reduced when any of the following occur:
- collections are received on the mortgage credits;
- the mortgage credits become past due;
- the mortgaged property is sold; and
- the collateral assets fall short of the definition of first class collateral.
- The bank must inform the DLC of collections on mortgaged credits or sale of mortgaged assets.
- The bank must ensure that adequate records on collections and sales made by the branches are maintained in its head office.
Settling losses and collateralized line
- Section 7 is amended by deleting the reference to DLC and providing that the collateral relevant to settling losses is the “Collateralized overnight clearing line granted by the BSP.”