What the Circular amends
- The Circular deletes subsections 1304.6, 2304.6, and 4304Q.6 of Books I, II, and IV, respectively.
- The Circular adds new sections: Sections 1322, 2322, 3322, and 4322Q to Books I, II, III and IV, respectively.
- The Circular further amends subsections 1303.5b, 2303.5b, 3303.3b, and 4303Q.7b of Books I, II, III and IV, respectively, to regulate interest accrual on extended/restructured loans.
Restructured loans: general policy
- Banks/Non-Bank Quasi-Banks (Banks/NBQBs) must exercise full discretion in restructuring loans to provide flexibility in repayment arrangements without impairing or endangering the bank’s/NBQB’s financial interest.
- Loan restructuring is allowed except in special cases approved by the Monetary Board, including loans whose funding is sourced partly or wholly from foreign currency obligations.
- The restructuring of loans granted to directors, officers, stockholders and their related interests (DOSRI) must be on terms not less favorable than those offered to others.
- Loan restructuring agreements must be treated as management tools to maintain or improve the soundness of lending operations and must be drawn mainly to assist borrowers in settling loan obligations, considering the borrower’s capacity to pay.
Definitions and coverage for restructuring
- Restructured loans are loans whose principal terms and conditions are modified under a restructuring agreement setting a new plan of payment or a periodic schedule of payment.
- The modification may include changes in maturity, interest rate, collateral, or an increase in the face amount of the debt resulting from capitalization of accrued interest/accumulated charges.
- A loan is not classified as a restructured loan if it is an item in litigation or subject of a judicially approved compromise, or if it is covered by petitions for suspension or new plans of payment approved by the Court or Securities Exchange Commission.
Board approval and procedures
- A loan may be restructured only subject to approval of the bank’s/NBQB’s board of directors in a board resolution embodying:
- the basis or justification for approval;
- determination of the borrower’s capacity to pay (including viability of the business); and
- the nature and extent of protection of the bank’s/NBQB’s exposure.
- The board’s authority to approve restructuring may be delegated to a committee or officer(s).
- Delegation is permitted only if board-prescribed guidelines specifically on restructuring of loans exist.
- Board-prescribed guidelines must be submitted to the appropriate supervising and examining department of the Central Bank within thirty (30) days from the date the guidelines are approved.
- Loans previously approved by the executive committee are governed by the existing rules for approval.
- Loans granted to DOSRI must receive Board approval as provided under existing rules and regulations.
- Restructured loans other than those approved by the Board must be reported to the Board for confirmation.
Classification, reporting, and past-due treatment
- A Restructured Loans account must be an account classification by itself and must be identified as such for recording and reporting purposes.
- Separate appropriate records must be maintained for Restructured Loans accounts.
- Restructured loans must be treated as past due in accordance with Section ____ 4/ (as referenced in the Circular’s added structure).
Interest accrual rules for restructured loans
- Interest earned on extended or renewed loans may be accrued only if there is no previously accrued but uncollected interest on those loans.
- Interest on restructured loans may be accrued only if:
- the loan is on current status at the time of interest accrual; and
- there is no previously accrued and/or capitalized but uncollected interest on the loan.