Use of Valuation Reserves While Account Is in Non-performing Portfolio
- Allowances for probable losses previously booked during the non-performing stage can be used to cover required valuation reserves on other accounts.
- With supervisory approval, any unused valuation reserve may be credited to income.
- This allowance utilization is conditional on the appraised property value not being lower than the booked ROPOA amount.
Property Appraisal Requirements Prior to Foreclosure or Acquisition
- Properties intended for foreclosure or acquisition must be appraised to determine true economic value.
- Independent appraisals, approved by the BSP, are required for ROPOA valued over ₱5 million.
- In-house appraisals must occur at least biennially.
- Immediate reappraisal is required if there is a material decline in property value.
Non-Cash Payment of Interest and Income Recognition
- Banks and NBQBs accepting non-cash interest payments from borrowers must defer income recognition until the property is sold.
- Non-cash payments are debited to the ROPOA account with reversal of accrued interest receivable.
- Valuation reserves remain undisturbed.
- Non-cash interest payments not yet accrued are credited temporarily to an "Other Deferred Credits" account.
- Upon property sale, appropriate entries reverse deferred credits and recognize income.
Inclusion of Foreclosure Expenses and Taxes in Book Value
- Foreclosure expenses and other charges, except for non-refundable capital gains and documentary stamp taxes (covered elsewhere), are included in the book value of ROPOA.
- Amendments clarify consistent treatment of these costs within the Manual of Regulations.
Definitions and Recording of ROPOA in the Manual of Accounts
- ROPOA includes properties acquired by banks through foreclosure, dation in payment, or other reasons, excluding those for banking operations or investment portfolios.
- Recording rules differ depending on acquisition method but emphasize lower of loan balance or purchase price valuation.
- Excess loan balances over bid price are charged to Miscellaneous Income/Loss.
- Deficiency judgments and probable claims are recorded under real or contingent accounts respectively.
- Expenses related to foreclosure, acquisition, maintenance, and advances are charged to Litigation/Assets Acquired Expenses.
- Income from ROPOA is credited to Income from Assets Acquired.
- Separate controls are maintained for domestic, foreign currency denominated units (FCDUs/EFCDUs), and foreign branches.
Allowance for Probable Losses (Valuation Reserve) for ROPOA
- Represents provisions set aside against current operations to cover losses when book values exceed appraised property values.
- Mandated under existing rules and regulations to maintain valuation reserves.
- Separate sub-control accounts for domestic, abroad, and FCDU/EFCDU properties.
Effective Date and Adoption
- Provisions are effective immediately upon issuance.
- Adopted by BSP Governor Rafael B. Buenaventura on 8 January 2002.