Legal basis and references
- The ROPOA appraisal and valuation-reserve requirements are anchored in BSP Circular No. 306 dated January 8, 2002 (corrected copy).
- The ROPOA valuation-reserve requirements are also aligned with Appendix 18 of the Manual of Regulations for Banks.
- Banks must follow the ROPOA framework for appraisal, booking, periodic reappraisal, and valuation reserves in those BSP materials as reiterated in this Circular Letter.
ROPOA appraisal before foreclosure or acquisition
- Before foreclosing or acquiring any property in settlement of loans and other advances, banks must properly appraise the property to determine its true economic value.
- If the total amount to be booked as ROPOA exceeds PHP 5 million, the appraisal must be conducted by an independent appraiser acceptable to the Bangko Sentral ng Pilipinas.
- Banks must ensure appraisal practices precede the foreclosure or acquisition so the ROPOA value reflects true economic value.
Booking ROPOA at lower of values
- The property acquired must be recorded at the balance of the loan (with the specified computation basis) or at the bid/purchase price, whichever is lower.
- For time loans, the “balance of the loan” basis equals principal plus booked accrued interest receivable.
- For bills discounted, the “balance of the loan” basis equals principal less unamortized income.
- When the booked amount of ROPOA exceeds the appraised value of the acquired property, banks must set up an allowance for probable losses equal to the excess of the amount booked over the appraised value.
Reappraisal frequency and triggers
- Banks must conduct an appraisal of ROPOA property at least every other year.
- Banks must conduct immediate re-appraisal when a ROPOA materially declines in value.
- The reappraisal obligation applies to the ROPOA property to maintain valuation accuracy over time.
Valuation reserves for loss—real estate
- Banks must provide one hundred percent (100%) valuation reserves for identified loss items involving real estate properties owned or acquired.
- The following real estate items are treated as “Loss” requiring 100% valuation reserves:
- Foreclosure expenses and other charges included in the book value of the property, excluding the amount of non-refundable capital gains tax and documentary stamp tax paid in connection with the foreclosure/purchase when these meet the criteria for inclusion in the book value of the acquired property.
- The excess of the book value over the appraised value.
- Property whose title is definitely lost to a third party or is being contested in court.
- Property where the exercise of the right of usufruct is not practicable or possible—including when it is eroded by a river or under any like circumstances.
- Banks must provide valuation reserves for acquired real estate property using the following schedule, reckoned from the expiration of the statutory redemption period for foreclosure or from perfection of contract if acquired through dation in payment:
- 6th Year: 10% annual provision; 10% accumulated reserve.
- 7th Year: 10% annual provision; 20% accumulated reserve.
- 8th Year: 10% annual provision; 30% accumulated reserve.
- 9th Year: 10% annual provision; 40% accumulated reserve.
- 10th Year: 10% annual provision; 50% accumulated reserve.
Valuation reserves for loss—personal property
- Banks must provide one hundred percent (100%) valuation reserves for identified loss items involving personal properties owned or acquired.
- The following personal property items are treated as “Loss” requiring 100% valuation reserves:
- Property not sold for more than three (3) years from the date of acquisition.
- Property which is worthless or not salable.
- Property whose title is lost or is being contested in court.
- Foreclosure expenses and other charges included in the book value of the property.
- The excess of the book value of the property over its appraised or realizable value.
- Banks must provide valuation reserves for acquired personal property using the following schedule, reckoned from the date of foreclosure or from perfection of the contract if acquired through dation in payment:
- 1st Year: 50% annual provision; 50% accumulated reserve.
- 2nd Year: 30% annual provision; 80% accumulated reserve.
- 3rd Year: 20% annual provision; 100% accumulated reserve.
Compliance requirement
- Banks must strictly comply with the ROPOA rules on appraisal, booking, reappraisal, and valuation reserves stated in these BSP ROPOA requirements as reiterated in this Circular Letter.