The Monetary Board approved recently the exclusion of “Sales Contract Receivables” from automatic classification as non-performing assets since they were found to be generally performing accounts.
“Sales Contract Receivables” represent the balance of the selling price of assets owned and/or acquired under a plan of settlement, whereby title to said assets is transferred to the buyer upon full payment of the agreed selling price. A “ROPOA” thus becomes performing upon sale and conversion into “Sales Contract Receivables”, since it then starts producing revenues in the form of amortization of principal and interest by virtue of such sale.
However, since “Sales Contract Receivables” is a subsidiary account of “Real and Other Properties Owned or Acquired (ROPOA), and since “ROPOAs” are automatically classified as “Substandard” and considered non-performing assets, “Sales Contracts Receivables” is automatically classified “Substandard” and considered non-performing assets, regardless of its status (i.e. past due or current).
In approving the new policy, the BSP deemed that the exclusion of “Sales Contract Receivables” from accounts classified “Substandard” and considered non-performing assets is not a case of further liberalization but rather a rationalization of existing regulations.
In order to prevent abuse of the new policy, the Monetary Board laid down safeguards by way of conditions before exclusion can be done: (a) That there has been down-payment of at least twenty percent (20%) of the agreed selling price or in the absence thereof, the installment payments had already amounted to at least twenty percent (20%) of the agreed selling price; (b) That payment must be in equal installments or in diminishing amounts and with intervals of not more than one (1) year; (c) That any grace period in the payment of principal shall not be more than two (2) years; (d) That there is no installment payment in arrear either on principal or interest; (e) That the account shall be automatically classified “Substandard” and considered non-performing in case of non-payment of any amortization due; and (f) That a “Sales Contract Receivable” which has been classified “Substandard” and considered non-performing due to non-payment of any amortization may only be upgraded/restored to unclassified and/or performing status after a satisfactory track record of at least three (3) consecutive payments of the required amortization of principal and/or interest has been established.