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Regulations

BSP Issuances

FREQUENTLY ASKED QUESTIONS
CIRCULAR NO. 736 – MANDATORY AGRI AGRA CREDIT UNDER R.A. NO. 10000

I.

Qualified Borrowers

 

1. Are the “qualified borrowers” explicitly enumerated in Subsection. X341.2 the same as the “borrowers” mentioned in Subsection. X341.5(1)(b)(v) of Circular No. 736?

No. The “qualified borrowers” in Subsection X341.2 are the eligible borrowers for the actual extension of agricultural loans used as direct compliance with the mandatory agri agra credit, as stated in Subsection X341.4(1)(a).

The “borrowers” in Subsection X341.5(1)(b)(v) refer to eligible borrowers of loans which are used as alternative compliance. These borrowers can be individuals, corporations or juridical entities, for as long as their loan proceeds are specifically used to finance purposes or activities enumerated under Subsection X341.1 (f) of Circular No. 736.

2. The definition of “qualified borrowers” under Subsection X341.2 of Circular No. 736 mentions organizations and associations in good standing. Does this include all corporations, entities and single proprietorships in general?

No. The reference to the term “organizations and associations” under Subsection X341.2 of Circular No. 736 only pertains to farmer's and fisherfolk's organizations and associations.

3. Under Subsection X341.2 of Circular No. 736, what does the term “in good standing'” mean?

The term "in good standing" pertains to legitimate farmer's and fisherfolk's organizations and associations which, based on the bank's credit underwriting standards, exhibit the capability to repay loans based on the feasibility of their project, their paying capacity, their estimated production and/or securities they can provide as collateral.

In some cases, the registering or licensing authority of these organizations and associations may issue a certificate of good standing. In the case of farmer’s and fisherfolk’s cooperatives for example, the Cooperative Development Authority (CDA) which has legal jurisdiction over cooperatives, may issue a certificate of good standing, based on the CDA’s own criteria.


II.

Loans to the Agr-Agra Sector

 

4. Subsection X341.5 states that loans intended for the construction and upgrading of infrastructure as well as the provision of post harvest facilities for the benefit of the agri agra sector as well as loans to borrowers for purposes of financing activities under Section 23 of the Agriculture and Fisheries Modernization Act (AFMA) can be considered alternative compliance to the 25% allocation requirement. Are borrowers for these types of loans confined to qualified borrowers as defined in Subsection X341.2 or do they include other types of borrowers (e.g. private corporations/ businesses)?

No. Banks are not confined to qualified borrowers when lending for these types of loans. Banks may lend out to private corporations or businesses for the purposes or activities mentioned under Section 23 of the AFMA and report this as alternative compliance with (a) the 10% agrarian reform credit, if bank can substantiate that these shall generally benefit agrarian reform beneficiaries; and/or (b) the 15% agricultural credit.

5. Will our existing loans to our corporate customers which were renewed after 20 April 2010 and which fall under the definition of lending to agricultural credit or agrarian reform credit be qualified as compliance thereto?

No. The IRR of R.A. No. 10000 and Circular No. 736 provide that only loans granted after 20 April 2010 may be considered as compliance with the mandatory agri agra credit. This is consistent with the provisions of R.A. No. 10000 which aim to allocate new funds for the agriculture and agrarian reform sector.

6. Included in the definition of post-harvest facilities are processing plants supporting post-harvest activities. Can loans granted to food manufacturers using agri products as raw materials qualify for compliance?

No. The provisions of the IRR of R.A. No. 10000 and Circular No. 736 define post-harvest facilities as threshers, moisture meters, dryers, weighing scales, milling equipment, fish ports, fish landings, ice plants and cold storage facilities, processing plants, warehouses, buying stations, market infrastructure and transportation facilities supporting post-harvest activities. These constitute direct facilities after harvest. Thus, the definition automatically disqualifies food manufacturers which use agri products as raw materials.

7. Do banks have to exclude past due and items in litigation accounts?

No. For purposes of determining compliance with the agri agra credit, banks may still include those loans which have become past due/items in litigation as compliance with the mandatory credit requirement, provided that these meet the qualification/eligibility criteria specified under Circular No. 736.

8. Are loans to corporations that engage in agri agra-related businesses considered as compliance to the agri agra mandatory credit?

Yes. Loans to a corporation can qualify as alternative compliance to the mandatory agricultural credit if the loan proceeds are used for any of the purposes or activities enumerated under Subsection X341.1 (f) of Circular No. 736.

Such loans can qualify as alternative compliance to the mandatory agrarian reform credit if they are used for any of the activities under Section 23 of the Agriculture and Fisheries Modernization Act (AFMA), as quoted in Subsection X341.1 (f)(viii) of Circular No. 736, and that these activities generally benefit agrarian reform beneficiaries.

9. R.A. No. 10000 allows loans to LGUs intended for the construction and upgrading of infrastructure, including, but not limited to farm-to-market roads as well as the provision of post-harvest facilities and other public infrastructure. If the loan is provided with a guarantee from the LGU Guaranty Corporation (LGUGC), will this disqualify the loan as eligible compliance?

No. The provision of a guarantee by the LGUGC on a loan which meets the conditions for eligibility under Subsection X341.5 of the MORB will not disqualify said loan from being used as compliance with the mandatory agri agra credit requirement.

10. The following are listed in Circular No. 736 as alternative compliance, however, these are also deductible from the direct compliance of Agrarian Reform Loans and Other Agricultural Credit Loans (Schedules A & B) and alternative compliance (Schedule C). What are these transactions that should be deducted:

a. Loans funded by proceeds of bond issues
b. Loans funded by proceeds of SDAs
c. Loans funded by proceeds of wholesale lending
d. Loans rediscounted with UBs/KBs

The deductions enumerated pertain to loans granted by a bank to the agrarian reform and agricultural sector that have been funded/financed through modes that shall be utilized as alternative compliance by the funding bank, i.e., wholesale lender, rediscounting bank, and investor in bond issues and SDAs.

These loans are required to be deducted to ensure that there is no double counting of compliance with the mandatory agrarian reform and agricultural credit within the banking industry.

11. Are the eligible agri agra compliance which are currently booked as MSME and are reported under the line item a/ of FRP Schedule 11A still be used as compliance with the new issuance? If yes, where shall these be reported?

Loans which meet the eligibility requirements of both the SME and agri agra credit requirement shall be classified under SME and such amount shall, likewise, be disclosed under the line item a/ of Schedule 11a of the FRP as either agrarian reform loans or other agricultural credit loans depending on the type of utilization.

12. Are FCDU loans qualified as direct compliance?

FCDU loans may qualify as direct compliance with the agri agra credit provided that it meets the qualification requirements under Subsection X341.4 of the MORB, as amended by Circular No. 736.

 

III.

Eligible Bonds and Securities

 

13. Are the Agriculture/Agrarian Reform Bonds/Securities which were previously declared agri agra compliant under Presidential Decree No. 717 and BSP circulars issued prior to Circular No. 736 still considered as eligible agri agra compliance?

No. Only securities issued after 20 April 2010 and expressly declared as eligible by the Agricultural Credit Policy Council (ACPC), the agency duly authorized by the Department of Agriculture (DA) and Department of Agrarian Reform (DAR) to certify securities, are allowed as alternative mode of compliance, as provided in Section 7 of the Implementing Rules and Regulations (IRR) of RA 10000. This is echoed in Subsection X341.5 of Circular No. 736 which superseded the BSP’s past issuances on agri agra credit under Presidential Decree (PD) No. 717.

However, in light of the effectivity dates of the RA No. 10000, its IRR and Circular No. 736, which became effective on 8 and 17 September 2011 (fifteen days after publication in a national newspaper), respectively; the securities that were declared eligible under PD No. 717 currently possessed by banks shall still be counted as compliance with the mandatory agri agra credit up to the reporting period ending 30 June 2011. Beyond this date, only securities issued after 20 April 2010 and declared as eligible by the ACPC, the duly authorized agency of DA/DAR shall be counted as compliance, in accordance with the IRR and Circular No. 736.

14. Are Agrarian Reform (AR) Bonds purchased by banks from Land Bank of the Philippines (LBP) after 20 April 2010 eligible for agri agra compliance under R.A. No. 10000? Please explain/define “issued after 20 April 2010” as defined in IRR/BSP Circular No. 736?

No. The provisions of the IRR and Circular No. 736 state that only those securities that are issued after 20 April 2010 and expressly declared as eligible agri agra compliance by ACPC, shall qualify as compliance under R.A. 10000. The term “issue” refers to the primary issuance of the security in the market.

15. Are there available Agrarian Reform (AR) Bonds issued after 20 April 2010?

To date, the Agricultural Credit Policy Council (ACPC), the agency duly authorized by the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR) to certify eligible securities, is finalizing the Accreditation Guidelines for eligible securities. The ACPC shall officially inform the BSP once these Guidelines are issued and when bonds/securities have been declared eligible.

16. Has the DA already submitted to BSP the list of debt securities eligible as alternative compliance? If yes, may we request for a copy of such listing?

To date, the Agricultural Credit Policy Council (ACPC), the agency duly authorized by the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR) to certify eligible securities, is finalizing the Accreditation Guidelines for eligible securities. The ACPC shall officially inform the BSP once these Guidelines are issued and when bonds/securities have been declared eligible. The BSP is coordinating with the ACPC on this matter. The BSP will disseminate information on certified eligible securities through a Circular Letter to All Banks (CL) as soon as ACPC provides the list.

17. Where can an Investing Bank find the list of securities that have been certified as eligible agri agra compliance by DA/DAR?

To date, the Agricultural Credit Policy Council (ACPC), the agency duly authorized by the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR) to certify eligible securities, is finalizing the Accreditation Guidelines for eligible securities. The ACPC shall officially inform the BSP once these Guidelines are issued and when bonds/securities have been declared eligible. The BSP is coordinating with the ACPC on this matter. The BSP will disseminate information on certified eligible securities through a Circular Letter to All Banks (CL) as soon as ACPC provides the list. The BSP will post on its website a CL containing the list of securities certified by as agri agra eligible by ACPC in the past month every 15th day of the succeeding month. The CL shall bear an incremental list of certified securities. A CL bearing an outstanding list of certified securities shall be posted on the BSP website at the beginning of every year.

18. May we seek understanding on why the Government Securities (GS) i.e., LBP, NFA, ERAP Bonds, Pag-Ibig Bonds, Special Purpose Treasury Bonds and Zero Coupon Bonds issued by the Home Guarantee Corporation, which are still outstanding and are qualified and bought precisely for agri agra compliance are now prohibited as alternative compliance since they were “granted” before 20 April 2010.

There are two (2) reasons for the ineligibility of these bonds as compliance with the mandatory agri agra credit requirement under R.A. No. 10000.

First, some of these bonds such as the Pag-Ibig Bonds and the Zero Coupon Bonds issued by the Home Guarantee Corporation no longer meet the eligibility criteria as compliance under R.A. No. 10000 since the proceeds arising from the issuance of these bonds were not necessarily directed to the agrarian reform or the agricultural sector.

Allowing these bonds as continued compliance would be inconsistent with the provisions of R.A. No. 10000 which aim to direct financial credit to the agrarian reform and agricultural sector.

The second reason relates to the matching of the bank’s compliance requirements with the calculation of its total loanable funds.

R.A. No. 10000 defined loanable funds as funds generated from its effectivity. This provision effectively revised the reference date used to calculate loanable funds from the previous reference date of 29 May 1975 (under PD No. 717) to 20 April 2010 (the effectivity date of R.A. No. 10000).

Inasmuch as a bank’s total loanable funds for the mandatory agri agra credit is computed from 20 April 2010 instead of 29 May 1975, it is but proper for the bank to report only those loans that were granted and/or investments made in securities that were issued subsequent to this cut-off period.

19. May we seek exemption for these GSs as alternative compliance to agri agra. There is a legal issue here since R.A. No. 10000 did not have any provision for such disqualification. Kindly clarify.

It may be difficult to seek exemption for these GSs in view of the reasons stated under Question No. 18 above.

20. Currently, there is difficulty in the market to obtain agrarian reform bonds as compliance with the agrarian reform credit. We hope you can assist us in informing which division in BSP can aid banks on this matter.

Banks are encouraged to coordinate with DAR and/or DA as regards the financing requirements of the agrarian reform and agriculture sector. Both agencies are also in the best position to provide possible referrals to other financial institutions which are engaged in lending to said sectors for purposes of establishing partnerships and/or ventures.

21. Who bears the credit risk of the loan portfolio to the agriculture and agrarian reform sector which shall be funded by the bonds or debt securities that shall be issued by the DBP and the LBP? If the DBP and the LBP does not bear the credit risk, lending may be done indiscriminately and asset quality will be an issue.

The DBP and the LBP shall bear the credit risk of the loans which it shall extend to the agriculture and agrarian reform sector using proceeds from its issuance of bonds and other debt securities.

22. Will the bonds and other debt securities that shall be issued by the DBP and the LBP be covered by a sovereign guarantee?

The provision of a sovereign guarantee on these bonds/debt securities shall depend on how the DBP and/or the LBP structure the terms of their bond/debt security offerings.

 

IV.

Investments in Special Deposit Accounts

 

23. In a news article related to agri agra alternative compliance, it states, among others, that funds deposited by the bank with the BSP’s special deposit account or SDA window can be counted as alternative compliance. We would like to be clarified on this matter as well as obtain information on the mechanics and how to avail the SDA window.

The IRR of R.A. No. 10000 and Circular No. 736 make reference to the term “special deposit account” (SDA) in relation to issuances of SDAs by BSP-accredited rural financial institutions (RFIs) and not that of the BSP.

Deposits made by a bank in the BSP’s Special Deposit Account facility may not be used as compliance with the mandatory agri agra credit.

24. Are LBP or Development Bank of the Philippines (DBP) (aside from rural financial institutions or RFIs) eligible to avail of the SDA window?

Yes. The LBP or the DBP may invest in SDAs issued by bank RFIs accredited by the BSP and use this as compliance with the mandatory agri agra credit.

As mentioned under Question 23 above, however, deposits made by the DBP/LBP in the BSP’s Special Deposit Account facility may not be used as compliance with the mandatory agri agra credit.

V.

Accredited Rural Financial Institutions

 

25. Where can a bank which is interested to become an accredited Rural Financial Institution (RFI) apply for accreditation?

A bank must send a letter of intent to be accredited as an RFI to the Managing Director (concurrently the agri agra Task Force Chairman), Central Supervisory Support Sub-Sector, Supervision and Examination Sector, BSP. The letter of intent should be submitted together with the documents enumerated under Subsection X341.8 (A) of Circular No. 736.

26. Where can a non-bank financial institution which is interested to become an RFI apply for accreditation?

A non-bank financial institution should send an application to the Agricultural Credit Policy Council (ACPC), the agency duly authorized by the Department of Agriculture (DA)/ Department of Agrarian Reform (DAR) to accredit non-bank RFIs.

To date, the ACPC is finalizing the Accreditation Guidelines for non-bank financial institutions that wish to be accredited as non-bank RFIs.

27. What are the qualification requirements for a bank to become an accredited RFI?

For a bank to become an accredited RFI, it must pass the qualification criteria under Subsection X341.8 (B) of Circular No. 736: (1) The bank’s total loan portfolio must be greater that its total investments and (2) its average credit exposure to agri agra must be greater than its exposure to other economic sectors. These shall be computed based on average of the last four quarters preceding the bank’s application for accreditation. This pre-supposes that the bank has submitted on time a complete and acceptable Financial Reporting Package (FRP) in the last four quarters prior to the time of its application for accreditation. A qualified bank shall be issued a Certificate of Accreditation (CoA) which bears the name of the bank, a unique Accreditation Reference Number and the date of accreditation.

28. What are the qualification requirements for a non-bank financial institution to become an accredited RFI?

The qualification requirements shall be embedded in the Accreditation Guidelines for non-bank RFIs. To date, the Agricultural Credit Policy Council (ACPC), as authorized by the Department of Agriculture (DA)/ Department of Agrarian Reform (DAR), is finalizing said Guidelines for non-bank financial institutions that wish to apply for accreditation. The ACPC shall officially inform the BSP once these Guidelines are issued and when they have accredited non-bank RFIs. The BSP is coordinating with the ACPC on this matter. The BSP will disseminate information on these non-bank RFIs through a Circular Letter to All Banks (CL) as soon as ACPC provides the list.

29. What is a Certificate of Accreditation (CoA)? What is its validity period? How can it be renewed?

The CoA is a document issued by the BSP to a bank that passed the qualification requirements enumerated in Subsection X341.8 (B) of Circular No. 736. The CoA bears the name of the bank, a unique Accreditation Reference Number and the date of accreditation.

The CoA shall remain valid unless revoked. To prevent revocation, the accredited bank RFI must annually submit to the Supervisory Data Center (SDC), Supervision and Examination Sector, BSP, a notarized certification, signed by its President and Compliance Officer or equivalent, that its loan portfolio remains substantially agri agra related – that its total loan portfolio is greater than its total investments and that its average credit exposure to agri agra is greater than any exposure to other economic sectors, as reported in Schedule 11.d of the Financial Reporting Package. This certification must be received by SDC within 10 banking days before the lapse of one year from the date of accreditation. Failure by an accredited bank RFI to submit this certification on time will serve as basis for revocation of its CoA. The CoA may also be revoked if the bank is found to be in violation of the qualification requirements under Circular No. 736.

It is important to note that CoA is solely for the purpose of ascertaining that the Bank RFI’s portfolio is substantially agri agra related, not an endorsement of its soundness. Lending/Investing Banks are expected to exercise due diligence and prudent credit underwriting standards when lending/investing in any RFI. The Lending/Investing Bank shall be required to provide the Accreditation Reference Numbers of its bank RFI borrowers/investees in its agri agra report. The accredited bank RFIs shall be responsible for providing the Lending/Investing Bank with a copy of its CoA.

30. What information or documentation should a bank require from an accredited RFI prior to lending/investing?

A bank deciding to lend or invest in an accredited RFI should ensure that the institution holds a valid CoA issued by the BSP in the case of a bank RFI; or in the case of a non-bank RFI, a similar certificate accreditation reference number issued by the ACPC, the agency duly authorized by DA/DAR. It is the responsibility of the Lending/Investing Bank to ensure that its RFI is duly accredited. The Lending/Investing Bank is required by the BSP to cite the Accreditation Reference Number of the RFIs in its agria agra report. The RFI, on the other hand, must ensure that its accreditation remains valid. The RFI should provide the Lending/Investing Bank with a copy of its certificate of accreditation.

31. Where can Lending/Investing Banks find the list of accredited bank and non-bank Rural Financial Institutions (RFIs)?

The BSP has accredited several banks as Rural Financial Institutions (RFIs). The list of banks is on Circular Letter (CL) No. 070 dated 25 September 2012, which is posted at the BSP website.

Prospectively, CLs containing an incremental list of bank RFIs that are accredited/dis-accredited in a reference month will be posted on the 15th day of succeeding month. A CL bearing the outstanding list of accredited/dis-accredited RFIs will be posted at the beginning of every year.

In the case of non-bank RFIs, the Agricultural Credit Policy Council (ACPC), as the agency duly authorized by the Department of Agriculture (DA)/ Department of Agrarian Reform (DAR), shall receive applications for accreditation. To date, the ACPC is finalizing the Accreditation Guidelines for non-bank RFIs.

32. The guidelines state that the following modes shall qualify as compliance with the mandatory agriculture and agrarian reform credit: a. Investments in SDAs of BSP-accredited rural financial institutions, and b. Wholesale lending granted to BSP-accredited rural financial institutions the proceeds of which shall be used exclusively for on-lending to the agriculture, fisheries and agrarian reform sector.

Who will bear the credit risk of the loan portfolio of the accredited rural financial institution? if the accredited rural financial institution will not shoulder credit risk, then it may lend indiscriminately.

The credit risk of the loan portfolio to the agriculture, fisheries and agrarian reform sector shall be borne by the accredited rural financial institution.

33. In the event that an accredited RFI becomes dis-accredited, will the exposure of the Lending/Investing Bank be still considered as compliance to the mandatory agri agra credit allocation?

The exposure of a Lending/Investing Bank to an accredited RFI shall be considered as compliance for as long as the RFI remains accredited. The Lending/Investing Bank will be allowed to use its exposure to a dis-accredited RFI only up to the next reporting quarter as a grace period. The report of the Lending/Investing Bank shall be deemed defective if a dis-accredited RFI is declared as compliance beyond this grace period.

34. In relation to Circular No. 736 particularly on Subsection X341.8A. Application for Accreditation, what is the application for accreditation for? Can you please expound this further so that the rural bank can make an appropriate action on this matter.

The accreditation is to ensure that the portfolio of a bank applying to become a rural financial institution is substantially agri agra related. The application for accreditation may be undertaken by financial institutions who are interested to receive loans/investments for use in agri agra related purposes from Lending/Investing Banks.

VI.

Loans and Other Credits to National Food Authority (NFA)

 

35. Another option provided is for the extension of loans to NFA. Is this confined to loans or does this cover any type of credit accommodation?

No. Loans to NFA, made after 20 April 2010, normally qualify as compliance with the 15% other agricultural credit, subject to the condition that the NFA shall not use the proceeds of said loans for relending.

Likewise, investments in debt securities issued by the NFA which are expressly declared as eligible by ACPC, the duly authorized agency by DA/DAR, and the proceeds of which shall be used to finance activities identified under Section 23 of the AFMA may also qualify as compliance with the mandatory agri agra credit.

36. Do NFA-registered millers/wholesalers include those engaged in milling/trading of sugar, corn and other grains, apart from rice?

Yes, for as long as the loans granted to these NFA-registered millers and wholesalers shall be used to finance activities identified under Section 23 of the AFMA.

37. To be eligible, loans to NFA shall not be used for relending. How will the bank know that the NFA will not use the proceeds of the funds for relending? Is there a need for the bank to request for a certification or proof that the proceeds are/will not be used for relending?

A bank, when granting loans, in general, is expected to have in place a loan review monitoring system for purposes of ensuring that the proceeds from these loans have been used in accordance with the purpose specified/stated by the borrower.

Section 39 of R.A. No. 8791 (General Banking Law of 2000) even provides that if a bank finds that the proceeds of the loan or other credit accommodation have been employed for purposes other than those agreed upon with the bank, a bank has the right to terminate the loan and demand immediate repayment of the obligation.

The type of loan review system which shall be employed for purposes of ensuring the proper utilization of loan proceeds by its borrowers is expected to vary among banks.

38. Is lending to NFA eligible for both agrarian and agricultural reform credit? The new IRR indicates that NFA is eligible only for agri credit.

No. Loans to NFA that are granted after 20 April 2010 shall normally only qualify as compliance with the mandatory agricultural credit, subject to the condition that the NFA shall not use the proceeds of said loans for relending.

39. We refer to our outstanding short term loan to National Food Authority (NFA) in the amount of Php150,000,000. The aforesaid credit was granted way back in year 2000 and renewed annually up to this year 2011. Our exposure to NFA has been used as part compliance to both agri and agra credits of the bank since 2000. Our query is that would the aforesaid outstanding short term loan to NFA remain eligible for compliance with both agri agra credit under the newly published IRR of BSP?

No. The IRR of R.A. No. 10000 and Circular No. 736 provide that only loans granted after 20 April 2010 may be considered as compliance with the mandatory agri agra credit. This is consistent with the provisions of R.A. No. 10000 which aim to allocate new funds for the agriculture and agrarian reform sector.

It also explicitly provided in the IRR and Circular No. 736 that loans to NFA, granted after 20 April 2010 shall normally only qualify as compliance with the agricultural credit, subject to the condition that the NFA shall not use the proceeds of said loans for relending.

 

VII.

Penalty Computation

 

40. When will banks be assessed penalties for non-compliance/under-compliance with the agri agra credit under R.A. No. 10000?

Penalties for non-compliance/under-compliance with the agri agra credit under R.A. No. 10000 shall be imposed on banks starting with the reporting period ending 31 December 2011.

41. It was mentioned during the Congressional meeting that the reckoning date for the penalty computation to be imposed on banks will be at year-end, instead of quarter-end to give the Department of Agriculture enough time to come up with alternative modes of compliance. Will this push through?

No. The provisions of the IRR of R.A. No. 10000 explicitly state that penalties for non-compliance/under-compliance with the mandated credit allocation under R.A. No. 10000 shall be computed on a quarterly basis.

VIII.

Computation of Loanable Funds Generated

 

42. Please explain/clarify “required reserves against a week ago level” as mentioned in Item b(12) of Subsection X341.6 – Computation of loanable funds.

The use of the term “required reserves against a week ago level” under Item b(12) of Subsection X341.6 of Circular No. 736 pertains to the current practice of computing reserve requirements on peso deposits, deposit substitutes and TOFA-Others based on levels of peso deposit liabilities, deposit substitutes and TOFA-Others of the prior week.

43. Is the total liabilities under the total loanable funds generated considered net of increase/decrease on date of report versus date of law signing 20 April 2010 – meaning any negative balance will become a deduction from the total capital accounts? Or should we recognize this as zero balance in the computation?

A net decrease (negative balance) in a bank’s total liabilities, as enumerated under Circular No. 736, shall reduce the bank’s reported total loanable funds as well as its 25% mandatory agri agra credit requirement.

In the event that a bank reports negative total loanable funds, this would be equivalent to zero loanable funds for purposes of computing its 25% mandatory agri agra credit requirement.

44. In the case of branches of foreign banks, with reference to Section X341.7 of MORB:

a. Are “unremitted profits” and “net profit/income” required to be included in the computation of total equity? “Unremitted Profits” are supposed to be remitted to parent company after obtaining prior BSP aprpoval. Are the above-mentioned profits subject to agri agra compliance?

Yes. Unremitted profits of foreign banks which form part of a foreign bank’s “Due to Head Office, Branches, Agencies Abroad” account shall be included in the determination of a bank’s total loanable funds.

b. “Total Equity Under RBU” includes “Net Due To – RBU”. Branches of foreign banks normally source funds from its parent company or overseas branches to service the needs of its local customers. In this case, branches of foreign banks need to borrow and set aside additional 25% to meet agri agra compliance. Is there no cap or ceiling in determining net due to which shall be included in the total equity under RBU? Does this mean that banks shall utilize the maximum “Net Due To Head Office/Branches/Agencies Abroad” in determining its total loanable funds?

Yes. The cap or ceiling in determining “Net Due To Head Office, Branches, Agencies Abroad - RBU” has been deleted. Thus, banks shall include the total “Net Due To Head Office/Branches/Agencies Abroad” account in determining its total loanable funds.

45. In computing the loanable fund base, can branches of foreign banks exclude balances reported under the Due To Head Office Account for both Peso and Foreign Regular Accounts pertaining to its: 1) Demand Deposit and Working Balance Maintained by Head Office with the Philippine Branch of Foreign Bank, and 2) Placements / Time Deposits / Borrowings

While subsection 341.7 of Circular 736 is silent on the exclusion of these items in the loanable fund base, such balances are in the same nature as "Interbank Loans Payable" which is an allowed deduction from Bills Payable under subsec 341.6 (computation of loanable fund base).

Existing regulations state that the balance of “Due to Head Office Account” booked under the Regular Banking Unit of a branch of a foreign bank shall be included in the computation of total loanable funds.

46. Item a of Subsection X341.6 mentions only the net increase from 20 April 2010 to date of report of the individual accounts booked under the Regular Banking Unit shall be included in the computation of total loanable funds. Does this mean that the net decrease on any of the mentioned accounts from 20 April 2010 to the date of the report will not be included (deducted) in computing the bank’s total loanable funds or will it be treated as zero balance?

A net decrease (negative balance) in any of the accounts mentioned under Item a of Subsection X341.6 of the MORB shall reduce the bank’s reported total loanable funds as well as its 25% mandatory agri agra credit requirement.

47. Item b(12) of Subsection X341.6 of the MORB lists required reserves against a week ago level of deposit liabilities, deposit substitutes, trust and other fiduciary accounts-others, and others as deductible items from the bank’s total loanable funds. Does this mean that a bank shall deduct its total required reserves against a week ago level of deposits and other liabilities as reported in its Consolidated Daily Report of Condition or will this still be further adjusted for exclusions similar to that enumerated under Subsection X341.6, i.e., deposits of banks, deposits of the National Government, deposits of GOCCs, borrowings from the BSP, interbank loans payable, etc.?

A bank shall deduct its total required reserves against a week ago level of deposits and other liabilities as reported in its Consolidated Daily Report of Condition.

48. Under Subsection X341.6 on the computation of total loanable funds, what does the term "Security Deposit for the Faithful Performance of Trust Duties" refer to?

Banks must report under this item the amount of the security deposit which is required to be set aside as security for the faithful performance for trust duties under existing rules and regulations.

 

IX.

Report on Compliance with agri agra Credit

 

49. How will loans be reported as compliance under the Report on Compliance with the Mandatory Agri Agra Credit? Does this refer to the principal amount only without considering accrued interest receivable or unearned interest discount (UID)?

Loans shall be reported net of UID but gross of allowance for probable losses.

50. Trade accounts and Dom Bills Purchased are no longer explicitly included. Pls advise then on the handling of trade related accounts and Dom Bills Purchase which are qualified as agri agra compliance. If still considered as eligible for agri agra, is it okay not to tally with the OACL booked per SOC?

Under Memorandum No. M-2011-052 dated 16 September 2011, trade accounts and domestic bills purchased which meet the qualification requirements for other agricultural credit loans under Subsection X341.5 of the Manual of Regulations for Banks shall be reported under the “Other Agricultural Credit Loans” account in the Financial Reporting Package.

51. Schedule A and B for 10% and 15% compliance are broken down into A and B. Is it correct that for item A - only those loans extended to individual/ natural persons stated in qualified borrowers (farmers, fisherfolks, etc) are considered direct compliance; and for Item B – these are actual loans extended to borrowers such as corporations, entities, single prop which are primarily engaged or for purposes of financing agri-activities/ purpose? Pls confirm.

No.

Schedule A - Direct compliance with the 10% agrarian reform credit requirement

Loans reported under Item A of Schedule A of the agri agra template consists of the total agrarian reform loans granted by a bank.

Loans reported under Item B of Schedule A of the template, on the other hand, excludes those agrarian reform loans which have been (a) funded by bond issues, in the case of the DBP or LBP, (b) funded by proceeds of SDAs, in the case of accredited RFIs, (c) funded by proceeds received through wholesale lending, or (d) rediscounted with UBs/KBs. The exclusions represent those loans which have been funded by alternative modes of compliance that are undertaken and counted as compliance by other banks.

Only those loans reported under Item B of Schedule A, shall be reported by a bank in its FRP as agrarian reform loans.

Schedule B - Direct compliance with the 15% other agricultural credit requirement

Loans reported under Item A of Schedule B of the agri agra template consists of the total other agricultural credit loans granted by a bank.

Loans reported under Item B of Schedule B of the template, on the other hand, excludes those other agricultural credit loans which have been (a) funded by bond issues, in the case of the DBP or LBP, (b) funded by proceeds of SDAs, in the case of accredited rural FIs, (c) funded by proceeds received through wholesale lending, or (d) rediscounted with UBs/KBs. The exclusions represent those loans which have been funded by alternative modes of compliance that are undertaken and counted as compliance by other banks.

Only those loans reported under Item B of Schedule B shall be reported by a bank in its FRP as other agricultural credit loans.

52. Shall banks continue to submit the Consolidated Report on the Utilization of Loanable Funds Generated Which Were Set Aside for Agrarian Reform Credit/Other Agricultural Credit (Compliance with P.D. No. 717)?

No. Banks shall no longer submit the agri agra report previously required under P.D. No. 717 starting with the reporting period ending 30 September 2011.

53. Circular No. 736 prescribes that reporting of agri agra will be done on December 2011. Does this mean that BSP will not evaluate bank’s compliance for the September 2011 quarter-end report?

Yes. Assessment of bank’s compliance with the mandatory agri agra credit requirement shall commence starting with the reporting period ending 31 December 2011.

54. Shall the bank’s exposure to rural banks for purposes of on-lending to the agriculture and agrarian reform sector still be booked/reported in the FRP as Interbank Loans Receivable?

Yes. Banks shall report exposure to rural banks for purposes of on-lending to the agriculture and agrarian reform sector as Interbank Loans Receivable in the FRP.

55. Shall banks report exposures to rural banks under Item D (Loans and Other Receivables) of Schedule C?

Yes. Banks shall report exposures to rural banks which meet the eligibility requirement for compliance under Subsection X341.5 of the MORB under Item D of Schedule C of the Agri Agra Report.

Banks shall, likewise, disclose the details of loans granted to rural banks that are used as alternative compliance with the mandatory agrarian reform and other agricultural credit under Schedule C-4 of the Agri Agra Report.

56. If the direct compliance to ARL (Schedule A) and to OACL (Schedule B) should tally with the amounts reported as ARL and OACL in the FRP- Schedule 11A, does it mean that all loan exposures which are eligible as alternative compliance, e.g. NFA, should be booked/classified as to counterparties and not as ARL or OACL? Will these be reported in the Agri Agra Schedule C under Loans and Other Receivables?

Loan exposures, other than those granted to banks, that qualify as compliance with the mandatory agrarian reform and agricultural credit under Subsection X341.4 and X341.5 of the Manual of Regulations for Banks shall be reported as Agrarian Reform Loans or Other Agricultural Credit Loans in the FRP depending on the bank’s utilization.

In this regard, footnote No. 3 under Schedules A and B of the Agri Agra Report which states that “These amounts should tally with amount reported as Agrarian Reform Loan/Other Agricultural Credit Loan in the FRP.” shall be corrected to state that “These amounts shall be reported under Agrarian Reform Loan/Other Agricultural Credit Loan in the FRP.”

57.a If two or more banks merge, with one of the merged banks as the surviving entity, what amount should be reported under the column "Amount on 20 April 2010"?

In case of mergers, it is the 20 April 2010 combined balances of the banks involved in the merger that should be reported under the column "Amount on 20 April 2010".

57.b If two or more banks consolidate to form a new entity, what amount should be reported under the column "Amount on 20 April 2010"?

In case of consolidation, it is the 20 April 2010 combined balances of the banks involved in the consolidation that should be reported under the column "Amount on 20 April 2010".

57.c If a bank was established after 20 April 2010, what amount should be reported under the column "Amount on 20 April 2010"?

In case of banks established after 20 April 2010, the amount that should be reported under the column "Amount on 20 April 2010" is zero (0).

 

X.

Others

 

58. It is easier for banks if BSP will open a window to accept deposits from banks intended for agri agra. Any funds accumulated by BSP will be made available to microfinance entities or rural banks/thrift banks that are engaged in agri agra lending activities.

This mode of compliance is not contemplated under R.A. No. 10000 nor in its IRR.

59. In the absence of alternative compliance in the market for banks/financial institutions especially branches of foreign banks, is there already a move or an update from concerned government agencies to address this matter?

The Department of Agriculture (DA), Department of Agrariam Reform (DAR) and the BSP remain open to coordinate with the private sector and other concerned agencies on the issuance of bonds/loans which may be used as compliance with the mandatory agri agra credit.

60. What is the method or proof we need to obtain to substantiate the agriculture credit compliance from our corporate customers? To which/whom do we obtain such?

Banks are expected to obtain proof of compliance from their counterparties when granting loans and/or other credits and/or making investments in debt/equity securities which shall be used as compliance with the mandatory agrarian reform and other agricultural credit.

61. In case we have other questions that are not addressed in these FAQs, who do we contact for clarifications/ follow-up inquiries?

You may email questions related to the implementation of Circular No. 736 (Rules and regulations on the mandatory credit allocation for agriculture and agrarian reform) to this dedicated email address: ra10k@bsp.gov.ph. The queries received through the above email address are collated into FAQs and periodically posted on the BSP website.