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Monetary Board Approves Third Phase of Reforms, Issues “Manual of Regulations on Foreign Exchange Transactions”

01.15.2009

The Monetary Board approved today the third phase of reforms in the foreign exchange regulatory framework and the release of the new "Manual of Regulations on Foreign Exchange Transactions", which replaces Circular No. 1389 dated 13 April 1993, as amended. Bangko Sentral Governor Amando M. Tetangco, Jr, said that, "The third phase of reforms includes the liberalization/streamlining of rules on foreign borrowings of private banks for relending purposes and registration of inward foreign portfolio investments; and reforms/provisions intended to improve monitoring of foreign exchange flows and formalize/clarify existing practices." The approved reforms are already incorporated in the new "Manual" which shall be posted on the BSP website.

The third wave of reforms includes the lifting of the prior BSP approval requirement for foreign loans by private banks with maturities longer than one (1) year intended for relending and increasing the number of banking days within which borrowers of short-term loans shall apply for registration with the BSP from three (3) banking days to ten (10) banking days from drawdown date. This will give borrowers enough time to prepare the documents for registration. For medium- and long-term loans, the registration shall be made within three (3) months from utilization of loan proceeds.  In support of the initiatives to improve the banking system’s balance sheet, the acquisition of non-performing assets/loans (NPAs/NPLs) of banks and other government financial institutions is added to the list of projects/costs eligible for financing with foreign borrowings. Also qualified for foreign financing are the acquisition of government assets approved for privatization and the refinancing of existing loans used for eligible projects/costs which are also eligible for servicing using foreign exchange sourced from banks and their subsidiary/affiliate foreign exchange corporations (forex corporations) under existing rules.

Investment-related reforms include: (1) delegating to custodian banks the registration of inward foreign investments in peso-denominated government securities and peso time deposits with tenor of at least 90 days; (2) discontinuing submission of report on sale of foreign exchange by banks for outward investments; and (3) reducing the number of days within which proceeds from outward investments funded with foreign exchange purchased from banks or their forex corporations are inwardly remitted and sold for pesos through banks from fifteen (15) to seven (7) banking days from receipt of the funds abroad. The reforms also allow reinvestment of dividends/profits and divestment proceeds without having to first inwardly remit such amounts within two (2) banking days from receipt of the funds abroad.

Other reforms/provisions intended to improve monitoring of foreign exchange flows and formalize/clarify existing practices include: (1) requiring prior BSP approval for prepayment of loans by private non-bank borrowers to be serviced using foreign exchange purchased from banks or their forex corporations, regardless of remaining days to maturity; (2) requiring submission of annual foreign borrowings plan for medium- and long-term loans while discontinuing submission of foreign borrowings plan for private sector entities’ short-term loans; (3) increasing penalties for late reporting to the BSP of transactions involving registered foreign investments; (4) clarifying that private sector loans requiring prior BSP approval shall be submitted prior to signing of loan documents and/or drawdown of loan proceeds; (5) requiring prior BSP approval for non-resident issuances of bonds/notes or similar instruments in the domestic market; and
(6) prohibiting offshore banking units (OBUs) to deposit in their peso deposit accounts with banks the peso equivalent of foreign exchange remittances related to inward foreign investments for payment to designated investee firms/beneficiaries in the Philippines.

With the adoption of the new "Manual", the application of the rules on the sale of foreign exchange is now limited to banks and their forex corporations. Hence, the sale of foreign exchange by non-bank BSP-supervised entities and their subsidiary/affiliate forex corporations, including qualified entities operating as foreign exchange dealers/money changers and remittance agents that are not banks and their forex corporations, continues to be governed by other applicable BSP regulations (currently by Circular No. 471 dated 24 January 2005) and shall not be covered under the "Manual".

The reforms in matrix form are attached for easy reference.

The new regulations will take effect fifteen (15) calendar days after publication of appropriate Circulars in the Official Gazette or a newspaper of general circulation in the Philippines.

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