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New Guidelines for Overdraft of Banks

07.17.2007

The Monetary Board of the Bangko Sentral ng Pilipinas (BSP) in its meeting last week approved the policy guidelines to govern the handling of overdraft of banks in their demand deposit accounts with the BSP.  The guidelines will allow banks participating in the clearing operations of the Philippine Clearing House Corporation to apply for an Overdraft Credit Line (OCL) on a fully secured basis up to a maximum amount equivalent to 50% of their demand deposit liabilities or the loan value of offered collaterals, whichever is lower.

BSP Governor, Amando M. Tetangco, Jr., said that the new policy measure is intended to provide temporary liquidity assistance and to cover the BSP exposure in case the OCL is converted into an emergency loan.

On top of the secured overdraft line, banks participating in the clearing operations of the Philippine Clearing House Corporation will be given a clean overdraft line equivalent to 10% of their approved rediscounting line.

The OCL is a short term credit facility intended to tide over a bank experiencing an unexpected or higher-than-usual volume of inward transactions.  If availed of, it may be allowed to remain outstanding up to a period of five consecutive days at an interest rate of 1/10 of 1% per day or the prevailing ninety-one day T-Bill rate plus three percentage points, whichever is higher.  It is not intended for the purpose of providing a credit facility which a bank experiencing liquidity problems may avail itself on a long-term or medium-term basis.

The guidelines shall supplement BSP Circular No. 516, Series of 2006 and shall be effective starting 1 January 2008, to give a sufficient time for banks to align their clearing operations with the new policy.

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