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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 Subsec. X341.2 of C736 the same as the “borrowers” mentioned in Subsec. X341.5(1)(b)(v) 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? 3. Under Subsection X341.2 of Circular No. 736, what does the term “in good standing'” mean? II. Loans to the Agri-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 Subsec. X341.2 or do they include other types of borrowers (e.g. private corporations/ businesses)? 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? 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? 7. Do banks have to exclude past due and items in litigation accounts? 8. Are loans to corporations that engage in agri-agra-related businesses considered as compliance to the agri-agra mandatory credit? 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? 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 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? III. Eligible Bonds and Securities 12. Are the Agriculture/Agrarian Reform Bonds/Securities which were previously declared agri-agra compliant under Presidential Decree 717 and BSP circulars issued prior to Circular No. 736 still considered as eligible agri-agra compliance? 13. 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. 1000? Please explain/define “issued after 20 April 2010” as defined in IRR/BSP Circular No. 736? 14. Are there available AR Bonds issued after 20 April 2010? 15. 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? 16. Where can an Investing Bank find the list of securities that have been certified as eligible agri-agra compliance by DA/DAR? 17. 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. 18. 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. 19. 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. 20. 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. 21. Will the bonds and other debt securities that shall be issued by the DBPand the LBP be covered by a sovereign guarantee? IV. Investments in Special Deposit Accounts 22. 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. 23. Are LBP or Development Bank of the Philippines (DBP) (aside from rural financial institutions or RFIs) eligible to avail of the SDA window? V. Accredited Rural Financial Institutions 24. Where can a bank which is interested to become an accredited Rural Financial Institution (RFI) apply for accreditation? 25. Where can a non-bank financial institution which is interested to become an RFI apply for accreditation? 26. What are the qualification requirements for a bank to become an accredited RFI? 27. What are the qualification requirements for a non-bank financial institution to become an accredited RFI? 28. What is a Certificate of Accreditation (CoA)? What is its validity period? How can it be renewed? 29. What information or documentation should a bank require from an accredited RFI prior to lending/investing? 30. Where can Lending/Investing Banks find the list of accredited bank and non-bank Rural Financial Institutions (RFIs)? 31. 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. 32. 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? 33. In relation to Circular No. 736 particularly on Subsection X341.8 A. 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. VI. Loans and Other Credits to National Food Authority (NFA) 34. 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? 35. Do NFA-registered millers/wholesalers include those engaged in milling/trading of sugar, corn and other grains, apart from rice? 36. 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? 37. Is lending to NFA eligible for both agrarian and agricultural reform credit? The new IRR indicates that NFA is eligible only for agri credit. 38. 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? VII. Penalty Computation 39. When will banks be assessed penalties for non-compliance/under-compliance with the agri agra credit under R.A. No. 10000? 40. 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? VIII. Computation of Loanable Funds Generated 41. Please explain/clarify “required reserves against a week ago level” as mentioned in Item b(12) of Subsection X341.6 – Computation of loanable funds. 42. 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? 43. 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? 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? 44. 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: a. Demand Deposit and Working Balance Maintained by Head Office with the Philippine Branch of Foreign Bank, and b. Placement/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). 45. 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? 46. 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.? IX. Report on Compliance with Agri-Agra Credit 47. 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? 48. 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? 49. 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. 50. 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)? 51. 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? 52. 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? 53. Shall banks report exposures to rural banks under Item D (Loans and Other Receivables) of Schedule C? 54. 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? X. Others 55. 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. 56. 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? 57. 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? 58. In case we have other questions that are not addressed in these FAQs, who do we contact for clarifications/ follow-up inquiries? Download PDF version of FAQ


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