Foreign Exchange Regulations FAQ

7/27/2019 Foreign Exchange Regulations FAQ

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BSP Foreign Exchange Regulations

June 2014

International Operations Department 1

BANGKO SENTRAL NG PILIPINAS (BSP) RULES ON FOREIGN EXCHANGETRANSACTIONS

I. CURRENT ACCOUNT

A. SALE OF FOREIGN EXCHANGE (FX) BY BANKS, THEIRSUBSIDIARY/AFFILIATE FOREX CORPORATIONS, AND OTHER NON-BANK ENTITIES OPERATING AS FX DEALERS/MONEY CHANGERS

1. W h o c an p u r c h a s e F X f r om A u t h o r i z e d A g e n t B a n k s ( A AB s ) 1,

t h e i r subs id iary /af f i lia te forex corporat ions (AAB -forex corp s) in the

Phi l ipp ines, and other n on -bank en t i t ies operat ing as FX dealers /mon ey

chang ers (FXDs/MCs)?

Residents and non-residents may purchase FX from AABs, AAB-forex

corps, and other non-bank entities operating as FXDs/MCs subject tospecific requirements. The sale of FX by AABs/AAB-forex corps is governedby the Manual of Regulations on Foreign Exchange Transactions(the FX Manual), issued under Circular No. 645 dated 13 February 2009,as amended,2 while the sale by FXDs/MCs is governed byCircular No. 471 dated 24 January 2005, as amended by Circular No. 652dated 5 May 2009.

2. Why is there a need to present suppo r t ing documents before FX can be

purchased?

Documents evidence the existence of legitimate outstanding FX obligationsthat may be serviced using FX resources of the banking system inaccordance with existing policy.

3. How much FX can res idents buy to cover paym ents to non - res ident

benef ic iar ies for no n- t rade t ransac t ions w i thout need for p r io r BSP

approva l?

AABs/AAB-forex corps may sell FX to residents without need for prior BSPapproval to cover payments to non-resident beneficiaries for non-trade

purposes (other than for foreign/foreign currency loans and investments)subject to the following:

For FX sales not exceeding US$120,000.00 per application or itsequivalent in other foreign currency

1

AABs refer to all categories of banks (except offshore banking units) duly licensed by the BSP. It is understood

that each category of bank should function within the operational parameters defined by existing laws/

regulations for the specific bank category to which they respectively belong. 2 The FX Manual replaced Circular No. 1389 dated 13 April 1993, as amended. A copy of the FX Manual and the

corresponding amendments thereto may be downloaded at:http://www.bsp.gov.ph/downloads/Regulations/

MORFXT/MORFXT.pdfandhttp://www.bsp.gov.ph/regulations/reg_MORFXT_amendments.asp respectively.
http://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdfhttp://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdfhttp://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdfhttp://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdfhttp://www.bsp.gov.ph/regulations/reg_MORFXT_amendments.asphttp://www.bsp.gov.ph/regulations/reg_MORFXT_amendments.asphttp://www.bsp.gov.ph/regulations/reg_MORFXT_amendments.asphttp://www.bsp.gov.ph/regulations/reg_MORFXT_amendments.asphttp://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdfhttp://www.bsp.gov.ph/downloads/Regulations/%20MORFXT/MORFXT.pdf


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a. Accomplished application to purchase FX using the prescribed form

For FX sales exceeding US$120,000.00 per application or its equivalent inother foreign currency

a.Accomplished application to purchase FX using the prescribed form; andb.Supporting documents required under existing rules3.

Non-bank entities operating as FXDs/MCs may sell FX for non-tradepurposes subject to submission of an accomplished application formto purchase FX and submission/presentation of supporting documentslisted in Section 2, Item A of BSP Circular No. 652 dated 5 May 2009 foramounts exceeding US$10,000 or its equivalent. For the sale of FX for allother purposes, FXDs/MCs shall require submission of an accomplishedapplication form to purchase FX and supporting documents listed inSection 2, Items B, C and D of the same Circular, regardless of the amount

involved.

4. How much FX can non - res ident tour is t s or ba l i kbayan s pu rchase f rom

AAB s /AAB - fo rex co rps?

Non-resident tourists or balikbayans may reconvert at airports or other portsof exit unspent pesos up to a maximum of US$10,000 or its equivalent in otherforeign currency calculated at prevailing exchange rates, without showingproof/s of previous sale of FX for pesos3. For amounts in excess ofUS$10,000, FX may also be purchased from AABs/AAB-forex corps to theextent of the amount of FX shown to have been sold by them for pesos toAABs/AAB-forex corps.

5. Can Overseas F il ip ino Workers (OFWs) be a llowed to open a peso

accoun t whose fund ing w i l l be remi t ted coming f rom his sa lary abroad

to pay for expenses in the Phi l ipp ines and/or as sav ing? What

suppor t i ng docu men t s shou ld b e presen ted?

Yes. Section 3.1 of the FX Manual, as amended allows non-residents toopen and maintain a peso deposit account with authorized agent banksoperating in the Philippines provided that the same shall be funded only by

any of the cases enumerated under Section 3.1(a) to 3.1(f) thereof [whichinclude inward remittance (IR) of convertible foreign exchange (FX) as ininstant case] and subject to documentation prescribed in Appendix 1.1 of theFX Manual.

It must be noted, however, that under Section 3.2(a) of the FX Manual, pesodeposits funded by IR of FX must have been used onshore as foreign directinvestments or invested in eligible portfolio instruments and registered withBSP or custodian banks, subject to the provisions on Foreign Investmentsof the FX Manual, to allow conversion of such peso deposits to FX;otherwise, prior BSP approval shall be required.

3

Item A of Appendix 1 of the FX Manual, as amended


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B. FOREIGN MERCHANDISE TRADE TRANSACTIONS (EXPORTS ANDIMPORTS)

6 . Are im p o r t s o r expor ts o f go ld a ll owed?

The importation of gold in any form is allowed without restriction except for(a) coin blanks, essentially of gold, which requires prior BSP approval; and(b) any article manufactured in whole or in part of gold, the stamps, brand ormarks of which do not indicate the actual fineness of gold quality, which isprohibited.

The export of gold in any form is likewise allowed except for gold fromsmall-scale mining, including panned gold, which is required to be sold to theBSP pursuant to Republic Act No. 7076 (Peoples Small-Scale Mining Act of

1991) dated 27 June 1991.

7. Where can imp orters obta in c learance/permi ts for regulated imp orts ?

Regulated imports are commodities that require clearances/permits relativeto the importation. Appendix 2 of the FX Manual provides a list of regulatedimport commodities and the administering agencies that issue the relevantclearances/permits.

8. Is reg is t ra t ion wi th the BSP s t i l l requ i red for impo r ts under Documents

agai ns t A c ce p t an ce (D/A ) and Op en Acco un t (O /A ) a r r angemen t s t o

be pa id w i t h FX t o be pu r c h a s ed f rom AABs?

Registration of said importations is no longer required but the transactionsmust be reported to the BSP by AABs prior to payment, in accordance withexisting BSP rules.

Furthermore, submission by banks of supporting documents for duly reportedimportations under D/A and O/A arrangements is no longer required, butbanks should maintain records of these transactions for BSP verification4.

9. Can impo rters pu rchase FX f rom AAB s/AAB -forex corp s for advancep ay m en t o f impor ta ti ons w i thou t p r i o r BSP approva l?

Importers may purchase FX from AABs/AAB-forex corps for advance paymentof importations without prior BSP approval regardless of amount involved,subject to standard documentary requirements.5.

4 Circular No. 818 dated 06 November 2013

5 Appendix 7 of the FX Manual, as amended


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10. Is the submiss ion of a du ly accomp l ished app l i ca t ion to purchase FX to

pay for impor t ob l iga tions requ i red for a ll mod es of payment?

A duly accomplished Application To Purchase Foreign Exchange using theprescribed format and supporting documents (as may be applicable) shall besubmitted to AABs and/or AAB-forex corps to allow the sale of FX to pay forimport obligations for all modes of payment6. The application form is inAnnex A of the FX Manual, as amended.

Clients may also submit to the FX selling AAB/AAB-forex corp. a facsimile copyof the duly accomplished and signed application to purchase FX, subject to theFX selling institutions Know Your Customer policy and provided that theoriginal application form is subsequently submitted to the FX sellingAAB/AAB-forex corp within seven (7) calendar days from purchase of FX.

The FX selling AAB/AAB-forex corps shall retain the duly accomplished formfor record and audit purposes.

11. Do amendments to Let ter of Credi t requ i re pr io r BSP appro val?

Amendment to Letters of Credit need not be referred to the BSP for priorapproval.

12. Is intercomp any net t ing of t rade t ransact ion s al lowed?

Yes. Under Section 18 of the FX Manual, intercompany open account offsetarrangement (which can be availed of only by firms with parent/affiliaterelationship abroad) is allowed as a form of payment for exports without priorBSP approval. Thus, this contemplates a scenario where a resident entity isa net exporter and, therefore, need not purchase FX for its importtransactions.

On the other hand, intercompany netting is not explicitly allowed as a modeof settlement for import transactions, i.e., where the resident company is anet importer.

13. Can a person br ing in o r take out of the count ry any amount of

Ph il ipp i ne cu r r en cy ?

A person may, without prior BSP approval, import or export, or bring in ortake out of the country, or electronically transfer, legal tender Philippinenotes and coins, checks, money orders or other bills of exchange drawn inpesos against banks operating in the Philippines in amounts not exceedingP10,000.00. Prior authorization from the BSP, through the InternationalOperations Department (IOD), is required for the export and import ofPhilippine currency exceeding P10,000.00.

6

Circular No. 818 dated 06 November 2013 and as clarified under Circular Letter no. CL-2014-039.


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14. Is there an y res t r i c t ion or l im i t in the amou nt of foreign cur rency that a

person m ay br ing in or take out of the Phi lipp ines?

There is no restriction or limit on the amount of foreign currency that a

person may bring in or take out of the Philippines. However, any personbringing in or taking out of the Philippines foreign currency, as well asother FX-denominated bearer monetary instruments, (whereby titlethereto passes to another by endorsement, assignment or delivery), inexcess of US$10,000.00 or its equivalent in other foreign currency mustdeclare such fact in writing and furnish information on the source andpurpose of the transport of such currency or monetary instruments usingthe prescribed Foreign Currency and Other FX-Denominated BearerMonetary Instruments Declaration Form. The form is available at the Bureauof Customs desk in the arrival/departure areas of all international airports andseaports. A copy of the form may also be downloaded from the FX Manual

(Annex K) which is posted at the BSP website 7. Failure to do so shallsubject the violator to sanctions, including confiscation of the foreigncurrency or monetary instruments involved.

15. Wi l l a chi ld t ravel ing w i th his parents or gua rdian be al lowed to br ing

out / into the Phi l ippines PHP10,000.00 (without BSP approval) and/or

US$10,000.00 or i ts equivalent in other foreign currency (without

declarat ion)?

Yes. Each child traveling with his/her parent/guardian may be allowed to bringout of/into the Philippines up to PHP10,000.00 without prior BSP approval.Each person, parent/guardian and child, should not hand carry an amountexceeding PHP10,000.00. if any child is not of age/capable to handlecurrency, then the total amount of pesos allocated for each child shall be handcarried by the parent or guardian but it should be ensured that:(a) the child/children are physically present with the parent/guardian uponCustoms inspection; (b) the total amount allocated per person, inclusive of theallotment for the child/children, should not average more than PHP10,000.00;and (c) the amount of allocation per person is fully explained to authorities bythe parent/guardian.

On the other hand, each child traveling with his/her parent/guardian may beallowed to bring out of/into the Philippines up to US$10,000.00 or itsequivalent in other foreign currency without written declaration. It should benoted, however, that if the amount to be hand carried by each person(including children) is in excess of US$10,000.00 or its equivalent in otherforeign exchange, the total to be transported should be declared in writingusing the Foreign Currency and other Foreign Exchange-denominated BearerMonetary Instruments Declaration Form (which should be available at theBOC desk in international airports/seaports) indicating allocations perperson/traveler. In such a case, the child/children must likewise be physicallypresent with the parent/guardian upon Customs inspection.

7 http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT-faas.zip


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II. CAPITAL ACCOUNTS

A. APPROVAL AND REGISTRATION OF FOREIGN LOANS AND OTHERRELATED TRANSACTIONS

1. Why do fo re ign / f o re ign cu r rency denomina ted bor row ings requ i reappro va l and reg is t ra t ion w i th the BSP?

The approval/registration process helps control the size of the countrysobligations and keep debt service burden at manageable levels, channelloan proceeds to priority purposes/projects supportive of the countrysdevelopment objectives and promote optimum utilization of the countrys FXresources.

2. What are the legal bases for such r equi rement?

The legal bases for the BSP approval and registration process for foreignborrowings are the following:

Section 20, Article VII and Section 21, Article XII of the PhilippineConstitution, pertaining to the authority of the President to incur andguarantee foreign loans on behalf of the Republic of the Philippines withprior concurrence of the Monetary Board (MB), and subject to suchlimitations as provided by law;

Republic Act (R.A.) No. 4860 (Foreign Borrowings Act) dated 8 September1966, as amended authorizing the President to obtain, on behalf of theRepublic of the Philippines, foreign loans and credits, among others;

R.A. No. 7653 (The New Central Bank Act) dated 14 June 1993 whichprovides, among others, that the BSP shall maintain international reservesadequate to meet any foreseeable net demands on the BSP for foreigncurrencies. The law also mandates the MB to provide written opinion on themonetary implications of a proposed credit operation of the governmentincluding its political subdivisions and instrumentalities before undertakingsaid credit operation;

Letter of Instructions No. 158 dated 21 January 1974, as clarified byAdministrative Order No. 99 dated 28 November 1993, which requires allforeign borrowing proposals of the government, government agenciesand financial institutions to be submitted for approval-in-principle by theMB before commencement of actual negotiations, or before issuing amandate of commitment to foreign funders/arrangers; and

Part Two, Chapter I of the FX Manual issued under Circular No. 645 dated13 February 2009, as amended.


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3. What is the di f ference between a fore ign loan and a fore ign cu rrencydenominated loan?

Foreign loans refer to all obligations, regardless of currency of denomination,

owed by Philippine residents to non-resident entities, including advancesfrom foreign parent companies/head offices, shareholders and affiliates, aswell as peso-denominated loans from non-residents. Foreign currencydenominated loans refer to obligations owed by Philippine residents toforeign currency deposit unit (FCDUs) of banks operating in the Philippinesthat are denominated in currencies other than the Philippine peso.

4. I f f o r e i g n c u r r e n c y l o an s a r e t o be ob t a i n ed f r om domes t i cso u rces , a re these con s idered domes t ic bo r row ings?

Yes. In line with international standards, the classification of a loan into

foreign or domestic is determined by the residency of the creditor and not bythe currency in which it is denominated. Hence, foreign currencydenominated loans obtained from domestic sources are considereddomestic borrowings. On the other hand, loans obtained from non-residentcreditors, even i f denominated in pesos, are considered foreign loans.

5. What projec ts are el ig ib le for f inanc ing wi th fore ign loans?The following are the types of projects/activities eligible for foreign financing:

a. Export-oriented projects;b. Projects registered with the Board of Investments (BOI);c. Priority investment areas under the current Investment Priorities Plan (IPP)

prepared by the BOI;d. Activities listed in the current Medium Term Public Investment Plan (MTPIP)

prepared by the National Economic and Development Authority (NEDA);e. Development of industrial estates and economic zones;f. Socialized/Low-cost housing projects;g. Acquisition of non-performing assets/loans (NPAs/NPLs) of banks and

other government financial institutions;h. Acquisition of government assets approved for privatization;i. Other projects that may be declared priority under the countrys

socio-economic development plan by the NEDA or by Congress;

j. Refinancing of existing loans used for eligible projects/costs which areeligible for servicing using foreign exchange FX sourced from AABs orAAB-forex corps; and

k. Microfinance activities.

Short-term foreign loans (with original maturities of up to one year) shallfinance exclusively the FX requirements8of eligible projects, except as maybe specifically allowed under the FX Manual. Medium- and long-term (MLT)foreign loans (with original maturities longer than one year) may finance FXcosts as well as peso costs (excluding working capital 9) of eligible projects.

8 FX requirements pertain to those payable in foreign currency to non-residents.

9

Includes peso costs/expenses which are administrative in nature, such as: payroll; utilities; taxes


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6. What is the rationale for l imi t ing fo re ign loans that are approv ed and/orregis tered by th e BSP to fun d on ly el ig ib le projec ts l is ted un der Sect ion

25 of the FX Manual?

This is to ensure that funds are channeled to priority projects in line withthe countrys development plan.

7. How long does i t take for the BSP to process and app rove an appl icat ionfor fore ign loans?

Processing time will depend on the complexity of the proposal as well asvolume and complexity of applications pending as of the date of receipt ofthe application. Generally, however, it will take about 30 banking days fromdate of receipt of all documents/information required to process the

application and prepare the appropriate recommendation to the approvingauthority.

8. May fore ign loan agreements subm i t ted to BSP for appro va l and/orregis t rat ion be notar ized?

No. Under Circular No. 618 (s. 1978), no foreign loan agreements, deferredpayment agreements or any other agreements which give rise to a foreigncurrency obligation or liability submitted to the Central Bank of the Philippines(now BSP) for approval and/or registration and no promissory notes orguarantees issued in connection therewith, shall be approved and/orregistered if these are notarized or are otherwise evidenced by a publicinstrument. Under Article 2244 of the New Civil Code of the Philippines, dulynotarized instruments are given preference over those not so constituted inthe event of liquidation. Thus, to comply with the pari passurepresentations and negative pledge covenants in loan agreements ofPhilippine borrowers, Circular No. 618 prescribes the submission to the BSPof unnotarized loan agreements.

9. Are fore ign loan pro ceeds requ i red to be inward ly - remi t ted and so ld forpesos?

Loan proceeds intended to fund local costs (those payable to residents) shouldbe inwardly-remitted and sold for pesos to the banking system. Amountsintended to finance FX costs (those payable to non-residents) need not beinwardly-remitted, but may either be paid directly to the offshore/non-resident supplier/beneficiary concerned or deposited in an FX accountpending utilization of the funds.

For public sector loans/bond/note issues, proceeds are required to bedeposited with the BSP, pending utilization of the funds, pursuant to Section113 of R.A. No. 7653 (The New Central Bank Act) dated 14 June 1993.


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A.1 PRIVATE SECTOR FOREIGN LOANS

10. Do in ter -comp any loans10requ i re BSP appro val?

Private sector inter-company loans generally do not require prior BSPapproval provided that the loan terms are market-oriented, theproject/purpose is eligible for foreign financing and there is no guaranteefrom any government entity or bank operating in the Philippines. Loansgranted by foreign subsidiaries11 that are not wholly-owned by the foreignparent company must be fully guaranteed by the parent company.

However, these loans should be registered with the BSP after the loanshave been drawn and utilized to qualify for servicing using FX to bepurchased from AABs/AAB-forex corps. Application for registration ofshort-term loans shall be filed with BSP within 10 banking days from drawdown

date, while for MLT loans, the application should be filed 3 months fromutilization of loan proceeds.

Furthermore, inter-company loans intended to refinance existing loans ofthe borrower or for re-lending require prior BSP approval to allow the BSP toevaluate the eligibility of the existing loans/projects to be refinanced.

11. Do private sector loans covering importat ion of freely importablecommodit ies under deferred LC or D/A-O/A arrangements w ith terms o f

mo re than one year require BSP app roval?

These loans do not require prior BSP approval provided these are notguaranteed by foreign government/official export credit agencies.However, these loans should be registered with the BSP to qualify forservicing using FX to be purchased from AABs/AAB-forex corps.

12. What are the bas ic /general requi rements fo r appro val / regis t rat ion o fpr iv ate sector fore ign loans?

Foreign borrowings of the private sector require prior approval and/orregistration by the BSP if the loans:

are guaranteed by the public sector or covered by FX guarantees issuedby AABs; or

will be serviced with FX to be purchased from AABs/AAB-forex corps; or

are obtained by private non-bank financial institutions with maturities ofmore than one year for the purpose of relending.

10Inter-company loans refer to those granted by foreign parent companies/head offices to their Philippine

branches/subsidiaries/affiliates.

11 Subsidiaries refer to corporations or firms more than 50 percent of the outstanding voting stock of which is

directly or indirectly owned, by another firm.


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The requirements for loan approval are as follows: BSP approval shall be obtained prior to signing of loan documents

and/or drawdown of loan proceeds.

The application form for such approval should be submitted throughthe Foreign Loan Approval and Registration System (FLAReS) 12together with the required supporting documents specified therein (allcertified as true copies by an authorized officer of the borrower-firm) atleast 30 banking days before the target signing date of the loan documentsand/or initial drawdown date, whichever is earlier;

Loan proceeds shall be used to finance eligible projects/costs listed inPart Two, Chapter I of the FX Manual;

Terms are market-oriented and compliant with pertinent laws; and

Payment of processing fee required underAppendix 20 of the FX Manual.

The requirements for loan registration are as follows: BSP application for loan registration shall be filed within ten (10)

banking days from drawdown date for short-term loans and three (3)months from utilization of loan proceeds for MLT loans;

Payment of processing fee is required under Appendix 20 of the FX Manualin cases where prior BSP approval is not required; and

The duly-accomplished application form together with the requiredsupporting documents specified therein (all certified as true copies byan authorized officer of the borrower-firm) including unnotarized copiesof the covering loan documents and proof of utilization of loanproceeds, which should be in accordance with the approved purposesunder the FX Manual, must be submitted.

13. What i s the d i f f e rence be tween B SP app rova l and reg i s t ra t ion o f apr iva te sec tor loan?

The BSP approval gives the borrower the authority to finalize negotiationswith the prospective creditor/s and sign the covering documents. The BSPregistration, which is done after signing of the covering agreements and fullutilization of loan proceeds, will allow the borrower to repay the loan usingFX to be purchased from AABs/AAB-forex corps. The Bangko SentralRegistration Document (BSRD)13 will be issued by the IOD upon theapplicants submission of the prescribed application form and supportingdocuments which should show compliance with the terms and conditions of

12 Registration procedures for FLAReS can be downloaded from the BSP website at

http://www.bsp.gov.ph/downloads/Regulations/FLAReSUAR.doc 13

A document issued only after full disbursement of the loan and review of the utilization of the loan proceeds.The BSRD authorizes the borrower to buy FX from AAB/AAB-forex corps for servicing of the registered

obligation on scheduled due dates.
http://www.bsp.gov.ph/downloads/Regulations/MORFXT/Appendix%2020%20(cir794_2013).dochttp://www.bsp.gov.ph/downloads/Regulations/FLAReSUAR.dochttp://www.bsp.gov.ph/downloads/Regulations/FLAReSUAR.dochttp://www.bsp.gov.ph/downloads/Regulations/FLAReSUAR.dochttp://www.bsp.gov.ph/downloads/Regulations/MORFXT/Appendix%2020%20(cir794_2013).doc


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the BSP approval of the loan/existing policy (for those loans not subject to priorBSP approval).

14. What is the bas is fo r requi r ing a 75/25 long -term debt - to-equi ty ratio?

The 75/25 long-term debt-to-equity ratio is a prudential limit on privatesector borrowers during the life of the loan to prevent an over-leveragedposition where excessive borrowings are incurred which may adversely affectability to service obligations.

15. Can the borrow er/s purchase FX f rom AAB s/AAB-forex co rps to pay thepr inc ipal and interest fa l ling due o n lo ans which are not yet fu l ly ut i l ized?

For loans not yet fully utilized, partial registration (notation) may be applied forwith the BSP. Servicing of such loans using FX to be purchased from

AABs/AAB-forex corps shall be evaluated and pro-rated on the basis ofutilizations duly noted/found eligible for registration by the BSP. Payment ofany unauthorized balance shall be funded with FX from sources other thanAABs/AAB-forex corps.

A.2 PUBLIC SECTOR FOREIGN LOANS

16. What is the dif ference between a project loan and a pro gram lo an of theNat ional Governm ent?

Project loans refer to foreign loans which are used to finance specific projectsof public sector borrowers. Compliance with the NEDA Board/InvestmentCoordination Committee guidance/rules and regulations is a pre-requisite forMB approval of the proposed project loan.

Program loans refer to foreign loans which are used by the NationalGovernment on an unrestricted basis for general development purposes or forthe development needs of the specific sector that is the focus of the programloan. Development Budget Coordination Committee approval is a pre-requisitefor MB approval of the proposed program loan.

17. What are the stages in the evaluat ion o f pub l ic sector foreign loan s?

The evaluation process involves: (a) approval-in-principle: refers to the approvalgranted by the MB to the indicative financial terms and purpose of the loan.Prior to commencement of actual negotiations or issuance of a mandate ofcommitment to foreign funders/arrangers, the borrower is required to secure theBSP approval-in-principle of its proposed foreign loan; (b) review of loandocuments: involves the negotiation and review, finalization and clearance ofloan documents; and (c) final approval: refers to the approval granted by theMB to a loan previously approved-in-principle after its terms have beenfinalized, the covering loan agreement signed, and other preconditions for final

approval have been complied with. This authorizes the borrower to draw on theloan/issue the bonds/notes/securities involved.


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18. What is an Off ic ial Developm ent Ass istance (ODA)?

Pursuant to R.A. No. 8182 (ODA Law), ODA refers to a loan or a loan and grant

facility which contains a grant element of at least 25 percent. In addition, theloan/loan and grant should also meet the following criteria pursuant to Section 2of the ODA Law: (a) it must be administered with the objective of promotingsustainable social and economic development and welfare of the Philippines;(b) it must be contracted with governments of foreign countries with whom thePhilippines has diplomatic, trade relations or bilateral agreements or which aremembers of the United Nations, their agencies and international or multilaterallending institutions; and (c) there are no available comparable financialinstruments in the capital market.

19. What is the In ter -agency Commi t tee for Rev iew of Fore ign Loan

Doc um ents ( IAC -RFLD)?

The IAC-RFLD, composed of representatives from the BSP, Department ofFinance, Department of Justice and the borrowing entity, is primarily taskedto review foreign loan and guarantee agreements and all related documents forforeign credits obtained or guaranteed by the Government and, if necessary,negotiate with representatives and counsels of the lenders.

20. Are al l loan d ocum ents cover ing pub l ic sector fore ign lo ans requi red tobe reviewed and cleared b y the IAC-RFLD?

No. The IAC-RFLD does not review agreements covering loans from theInternational Bank for Reconstruction and Development, the AsianDevelopment Bank and other ODA loan creditors with standard loanagreements. Instead of an IAC-RFLD clearance, a copy of the agreed minutesof negotiations between the Philippine negotiating panel and lenders concernedis submitted as one of the requirements for final MB approval of the loan.

21. Is th ere a fee to b e paid fo r the IAC-RFLD review and clearance?

Yes. Pursuant to MB Resolution No. 1436 dated 8 October 1999, Government

Owned and Controlled Corporations (GOCCs) are required to pay a regularprocessing fee of P20,000.00 to the IAC-RFLD through the IOD on allapplications for review of loan agreements and related documents and doubleprocessing fee for agreements/documents requested to be reviewed on a rushbasis.

22. What are the implications of the negative pledge clause in the creditagreement of pub l i c sec tor bor row ers?

The purpose of the negative pledge clause is to ensure that a borrowersassets will remain unencumbered and available to satisfy the claims of all

general unsecured creditors should the borrower get into financial difficulties.The basic rationale of the clause is that whenever an asset of a borrower is


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pledged in favor of only one creditor or some of the creditors, the position ofthe borrowers unsecured lenders may be prejudiced.

23. What is the purpose of the collective action clause or CAC in

t h e c red i t ag reemen t s o f pub l ic sec to r bo r rowers?

CACs would allow the borrower to restructure its debt payments under itsinternational bonds during financial difficulties by permitting a specifiedsupermajority to bind all bondholders within the same issue to the financialterms of restructuring. Such clauses are designed to facilitate communicationand coordination between an issuer and its bondholders and make it easierfor the parties to recontract, and to make it more difficult for a minority ofholdout investors to slow down or disrupt the debt restructuring process.

24. What is break-funding cost?

Break-funding cost refers to the amount that sufficiently compensates alender for all losses or costs that the lender reasonably determines inaccordance with market standards to be attributable to terminating,liquidating, obtaining or re-establishing any deposit, related trading position orfunding arrangement entered into by it as a result of the borrowers voluntaryprepayment of a loan whether partially or in full.

25. Do p ubl ic sector loans requi re BSP appro val and/or regis tration?

All foreign/foreign currency denominated borrowings of the public sectorrequire prior BSP approval, except for short-term loans from FCDUs of bankslisted under Section 24.4 of the FX Manual. Such BSP approval shall beobtained prior to: (a) commencement of actual negotiations; or (b) issuing amandate of commitment to foreign funders/arrangers or signing of loandocuments and/or drawdown of loan proceeds.

Public sector loans extended final approval by the MB are deemed registered;however, purchase of FX from AABs/AAB-forex corps for public sectorloans that have been extended final approval by the BSP requires priorspecific BSP authority.

26. Is th e MB m andated to repor t to Congress ac t ions taken o n fore ign loanapp l i cat ions of pub l i c sec tor bo r rowers?

Yes. Under Section 20, Article VII of the 1987 Constitution, the MBshall, within 30 days from the end of every quarter of the calendaryear, submit to Congress a complete report of its decision onapplications for loans to be contracted or guaranteed by theGovernment or GOCCs which would have the effect of increasing theforeign debt, and containing other matters as may be provided by law.


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A.3 OTHER MATTERS

27. Is payment in fore ign currency al lowed for res ident - to- res ident FXt ransac t ions?

While the repeal of the Uniform Currency Law authorizes Philippineresidents to denominate transactions in currencies other than thePhilippine peso, existing policies on FX transactions prohibitresident-to-resident FX transactions from being funded with FX to bepurchased from AABs/AAB-forex corps. Foreign loan proceeds, used forpayments to residents (other than banks) in foreign currency are not eligiblefor registration and repayment with FX from AABs/AAB-forex corps.

28. Are there repor ts requ i red f rom bor row ers re la t ing to the i r loans?

Under Section 22.4 of the FX Manual, all foreign borrowings, regardless ofmaturity, creditor, source of FX funds, and whether or notapproved/registered by the BSP (in the case of private sector loans), arerequired to be reported monthly to the BSP, through the IOD, using theprescribed forms (ST-2 for short-term loans and Form 2 for MLT loans14).

Furthermore, a summary of the financial terms and conditions of private sectorloans/bond issuances without BSP approval/registration must be providedusing the prescribed format (Annexes E.3 and E.4 of the FX Manual) for thecreation of a loan record.

29. Why does BSP requ i re submiss ion o f f o re ign bo r row ings p lans? Whoare requ i red to su bm i t these and w hen?

The BSP requires resident companies/entities intending to obtainmedium- and long-term foreign loans (including issuance of bonds/notes/debtsecurities offshore) to submit to the BSP-IOD their annual foreign borrowingsplan15for monitoring and programming purposes as follows:

Public sector entities, including the National Government every end-September for borrowings for the following year, regardless

of amount; and

Private sector entities, with planned aggregate annual borrowings of atleast USD10 million, or its equivalent every end-September forborrowings for the following year.

The timetable and any changes in the submitted foreign borrowings planshall be communicated to the BSP-IOD within two (2) weeks upon availability

14 May be downloaded from the BSP website at:

http://www.bsp.gov.ph/downloads/Regulations/MORFXT/MORFXT-faas.zip (under Annexes E.1, E.2, E.3 and

E.4 of the FX Manual)

15 The foreign borrowings plan form may be downloaded from the BSP website at:

http://www.bsp.gov.ph/regulations/reg_others.asp.
http://www.bsp.gov.ph/regulations/reg_others.asphttp://www.bsp.gov.ph/regulations/reg_others.asphttp://www.bsp.gov.ph/regulations/reg_others.asp


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of information for monitoring and programming purposes.

Private sector loans that are submitted to the BSP for approval or registration thatwere not included under a foreign borrowings plan as required shall be

assessed an additional 10 percent of the applicable processing fee.

30. Is BSP approval required for amendments to the f inancial terms andcondi t ions o f BSP-approved loans?

Any change in the financial terms and conditions of BSP-approved loans shallbe subject to BSP approval before signing of the covering agreement/effectivityof the changes made.

31. What is the period w ithin wh ich the borro wer can f inal ize the loan termsand con tract the covering loan agreements/contr acts?

In general, the borrower must finalize and contract the covering loanagreements/contracts within a prescriptive period of 90 calendar days afterreceipt of written notice of BSP approval of the loan. Otherwise, the approvalshall be deemed cancelled, unless a request for extension has been receivedby the BSP prior to the expiry of the prescriptive period. Requests for extensionof the period are evaluated based on the merits of the case.

32. What gu arantees are sub jec t to B SP approva l /reg is t rat ion ?

The following guarantees require prior BSP approval:

Guarantees for account of the public sector as well as those to beissued by GOCCs in favor of non-residents:

Guarantees issued by foreign banks and financial institutions to secureobligations of residents partaking the nature of a foreign loan whichrequire prior BSP approval pursuant to Sec. 23 of the FX Manual; and

Other guarantees/similar arrangements which give rise to actual foreignobligations.

Guarantees for the account of the private sector to be issued by: (a) local banks,financial institutions (FIs) including government financial institutions that arenot foreign currency/foreign loan-related; and (b) foreign banks, FIs and otherforeign entities to secure peso/FCDU loans of residents from resident bankcreditors, need not be individually applied for BSP registration but must bereported by banks to the BSP to be considered as registered.

33. Can t h e BSP g r a n t f i n a n c i n g t o l o c a l f i rm s a n d / o r p r o v i d e ag u aran tee fo r ob l iga ti ons?

The BSP is not authorized under its charter to grant loans or provide any formof guarantee.


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34. Can a c om pan y c o n v e r t i t s p e s o r e c e i p t s i n t o FX on a r e g u l a rb a s i s , i . e . , b u y FX f r om AABs / AAB - f o r e x c o r p s o n mon t h l y ,

q u a r t e r l y , e t c . b a s i s a n d d e p o s i t s u c h FX pu r c h a s e d i n a n

o f f s h o r e a c c o u n t a s r e q u i r ed b y t h e c r ed i t o r s ?

No, because these are tantamount to an advance purchase of FX and paymentof the obligation, which are not allowed under existing policy. Payment of loansout of FX to be purchased from the banking system not earlier than two (2)days prior to original due dates is allowed for BSP-registered accounts inamounts indicated in the BSP registration document.

35. Can pr ivate sector bo rrowers source FX f rom AABs/AAB -forex corps tofund payments of BSP-regis tered loans outs ide of scheduled payment

dates indicated in the BSRD?

Private sector borrowers can purchase FX from AABs/AAB-forex corps to fundpast-due payments provided the period of delay does not exceed 30 calendardays from the original due dates indicated in the BSRDs; otherwise, priorspecific authority must be sought from the BSP. With regard to prepayments,AABs/AAB-forex corps may sell FX to private sector borrowers for prepaymentsof BSP-registered private sector loans (both short-term and medium-andlong-term, including bonds and notes) that are not publicly guaranteed and arecovered by a BSRD without prior BSP approval, subject to the provisions ofSection 29.4 of the FX Manual, as amended.

36. Is pr io r approval / regis t rat ion requi red fo r fore ign/ fore ign cu rrency loanswh ose repaym ent wi l l be covered by an FX swap or a cross currency

swap (CCS)

Section 28 of the FX Manual provides that loans must be registered with theBSP to be eligible for servicing using FX resources of AABs/AAB-forex corps.Thus, loans covered by FX swaps (where the first leg is an FX purchase andthe second leg is an FX sale)/CCS must be registered with the BSP to allowdelivery of FX under the swap contract. If prior approval is required for theloan under Part II, Chapter I of the FX Manual, this approval must be obtained

before signing of loan agreement/drawdown of loan proceeds; registrationfollows thereafter.

Same requirement is reiterated under Item D.2 of Appendix 18 of the FXManual.

C. FOREIGN INVESTMENTS

B.1 REGISTRATION OF FOREIGN INVESTMENTS

37. Is the reg is t rat ion of fo re ign inves tments wi th the BSP mandatory?

The registration of foreign investments (i.e., those made by non-residents)


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with the BSP or with investors designated custodian bank on behalf of theBSP is optional. It is required only if the FX needed to fund therepatriation of capital and the remittance of earnings thereon will bepurchased from AABs/ AAB-forex corps.

38. What is the benef i t of such BSP regis t ration to investors?

BSP registration will authorize the foreign investor or his duly authorizedrepresentative to purchase FX from AABs/AAB-forex corps to repatriate capitaland/or remit dividends/profits/earnings accruing on BSP-registered investmentsin FX. The BSRD16 is one of the prescribed documents to support anapplication to buy FX from AABs/AAB-forex corps in the Philippines for thesepurposes.

39. What categories of foreign investments are required to be registered

d i rec t l y w i th the BSP, and wh at may b e reg is tered wi th the investorsdes ignated cus tod ian bank on beha lf o f the BSP?

Inward foreign direct investments (FDIs) and investments inpeso-denominated debt instruments issued onshore by private resident firms(not covered by Section 23) as defined under Sections 34 and 35.4 of theFX Manual shall be registered directly with the BSP. Inward remittances of FXfunding the FDIs need not be converted to pesos to qualify for BSP registration.

Inward foreign investments in peso-denominated securities issued onshoreby the National Government and other public sector entities; PSE-listedequity securities issued by both residents and non-residents; and peso timedeposits (with maturities of at least 90 days) shall be registered with theinvestors designated custodian bank on behalf of the BSP (see item 42 fordefinition of custodian banks). Inward remittances of FX funding portfolioinvestments need to be converted to pesos.

40. What are the bas ic requi rements for BSP regis t rat ion of fore igninves tments?

First, as a general rule, there must be an inward remittance of FX asevidenced by a duly accomplished Certificate of Inward Remittance of FX(for cash investments), or, proof of transfer of assets to the investee/beneficiaryfirm in the Philippines (for investments in kind).

Second, there must be evidence of receipt of the funds/assets bythe local investee/beneficiary/or the local seller/issuer of the investmentinstruments, such as a Sworn Certification on such receipt and issuance ofshares in consideration thereof (for investment in stock corporations);stockbrokers purchase invoice or subscription agreement (for PSE -listed

16 The BSRD is the document evidencing registration of a foreign investment and is issued by the BSP, through

IOD, or by a custodian bank registering the investment on behalf of the BSP .


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shares); accredited dealers Confirmation of Sale (for government securities);Certificate of Time Deposit (for peso time deposits with tenor of 90 days orlonger); and contract/certificate of investment (for peso-denominated debtinstruments). (For the complete registration procedure and documentation

requirement, you may refer to the Appendix 10 of the FX Manual.)

All applications for registration of FDIs that are to be filed directly with the BSP,through the IOD, shall be supported by a duly accomplished application form(Annex W of the FX Manual).

41. Is there a prescr ipt ive per iod for the f i l ing o f appl icat ion s for regis t rationof FDIs w i th the BSP?

All applications for registration of FDIs (under Section 34 of the FX Manual)shall be filed with the BSP within one (1) year from the date of inward

remittance/actual transfer of assets to the Philippines. However, this one-yearprescriptive period shall commence on 19 April 2015. Prior to that, allapplications for registration of FDI may be filed with the BSP regardless of dateof inward remittance/transfer of assets.

42. What is a cus tod ian bank?

A custodian bank may be a universal/commercial bank or an offshore bankingunit (OBU) appointed by the foreign investor to register his investments and tohold shares for and on his behalf, and to represent him in all the necessaryactions in connection with his investment.

43. Under Sec t ion 43 of the FX Manua l , fore ign inves tments cer t i f i ed b ys tock t rans fer agents to have been made p r io r to 15 March 1973 may be

serv iced us ing FX purchased f rom AAB s/AAB -forex corps w i thout pr io r

BSP approval . In th e absence o f a s to ck t rans fe r agen t t h a t w i l l ce r t i f y

there to , may fo re ign inves tments made pr io r to 15 March 1973 s t i l l be

serv iced us ing FX purchased f rom AABs /AA B- forex corps?

The Stock Transfer Agents (STAs) certification is a basic requirement forrepatriation of investments made prior to 15 March 1973 in PSE-listed securities

using FX purchased from AABs/AAB-forex corps without prior BSP approval.On the other hand, FDIs made prior to 15 March 1973 may be serviced usingFX purchased from AABs/AAB-forex corps even without the required STAscertification, provided that the investments are duly registered with the BSP.Application for BSP registration of such investments may be filed with theBSP-IOD subject to the documentation requirements under Appendix 12 of theFX Manual.


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44. Can a foreign investo r outw ard remit the FX equiv alent of their excesspeso funds ar is ing f rom unus ed por t ion of FX inwardly remi t ted and

conver ted to pesos for the purpose of making investments in the

Phi l ippines?

Yes. Section 40.3 of the FX Manual allows banks which registered foreignportfolio investments (FPIs) to sell for outward remittance the equivalent FX of:(a) excess pesos funded with inward remittance of FX; plus (b) interest earnedon the excess pesos, provided: (a) the investor shall comply with the prescribeddocuments under Item C.3 of Appendix 1; and (b) 50 percent of the FX inwardlyremitted must have funded duly registered investments in the Philippines.

The provision is applicable to FPIs [item nos. 1 3 of Section 3517of the FXManual] that have been registered by custodian banks. For foreign investmentsregistered by the BSP, prior approval must be obtained for the remittance of the

excess peso funds.

45. Is there a one-stop act ion center for foreign investm ents?

The BOIs Business One-Stop Shop Action Center (BOSSAC) facilitates theprocessing and documentation of all requirements necessary for theestablishment of a business enterprise established in the country. The BOSSACputs together, under one roof, all government agencies in charge of businessregistration, licensing and permit issuance.

The BOI also coordinates an inter-agency Investment Promotion Unit (IPU)network for investment after care. The BSP is a member of the IPU.

46. Can an investment by a non-resident in equity shares of anotherno n-resident that are l is ted at the PSE be registered to al low servic ing o f

these investments us ing bank ing system resources?

Yes, said investments may be registered with custodian banks subject todocumentary requirements provided under Appendix 10 of the FX Manual.

47. Can non-resident issuers of PSE-l is ted equity securi t ies buy from

AAB s/AAB -forex corps th e FX equivalent of peso pro ceeds f rom theonsh ore sale of such sh ares?

Non-resident issuers or their authorized representative may purchase fromtheir depository AAB (where the peso account is maintained) the equivalentFX of the amount deposited in their peso account, provided that these arefunded by peso proceeds from the onshore sale of their PSE-listed equity

17 Section 35. Inward Foreign Portfolio Investments. Inward foreign investments shall refer to the following

instruments:

1. Peso-denominated securities issued onshore by the National Government and other public sector

entities.2. Securities of resident enterprises listed at the Philippine Stock Exchange (PSE)3. Peso time deposits with AAB with a maturity of at least ninety (90) days. xxx


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securities. For this purpose, the original BSP letter-authority to purchase FXand duly accomplished application to purchase FX using the prescribedformat must be submitted to the FX selling/depository AAB. Non-residentissuers or their authorized representative shall submit to the BSP, through

IOD, the request to purchase FX from their depository AAB, supported bydocuments listed under item no. 7 of Appendix 1.1 of the FX Manual.

48. Is the new Authority to Disclose Information under Circu lar No. 838dated 26 Ju ne 2014 required to b e subm it ted by no n-residents for every

regis t rat ion of investment wi th c ustodian banks?

The new Authority to Disclose Information (ATD) is only required to besubmitted once by the non-resident investor (or his authorized representative)who intends to register his investment with a custodian bank. The registrationallows the foreign investor to use the foreign exchange resources of the banking

system for outward remittance of capital and earnings on the registeredinvestment. Execution of the ATD signals the authority given by the investor forthe custodian bank to disclose to the BSP information that may be required bythe BSP relative to any and all investments that the non-resident investor mayhave in the custody of the particular bank. The required authorization will coverthe following:

a. peso-denominated government securities;b. PSE-listed securities of residents;c. peso time deposits with tenor of at least 90 days;d. non-resident investments in equities issued by non-residents previously listed

in an international exchange and subsequently uplifted/transferred to PSE;and

e. non-resident investments in PSE-listed equity securities issued bynon-residents.

B.2 INVESTMENTS BY PHILIPPINE RESIDENTS

49. How much FX can a Ph i l i pp ine res iden t pu rchase f rom AABs /AAB - fo rex co rps fo r inves tmen t s?

A Philippine resident may purchase FX from such entities for outwardinvestments in amounts not exceeding US$60 million per investor per year, orper fund per year for qualified investors18, without prior BSP approval, subject toexisting conditions under the FX Manual and submission of supportingdocuments as prescribed therein. However, outward investments by residentsexceeding US$60 million per investor per year, or per fund per year, that areintended to be funded with FX purchased from AABs/AAB-forex corps, shall

18

Qualified investors are limited to the following: insurance and pre-need companies; collective/pooled funds,

whether in a corporate or contractual structure, such as mutual funds, unit investment trust funds and

variable insurance; public or private pension or retirement or provident funds and such other entities andfunds as the BSP may determine as qualified investors on the basis of such factors as financial sophistication,

size and regularity of financial transactions, net worth and size of assets being managed.


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require prior BSP approval. Qualified investors, as defined in the FX Manual,may apply for a higher annual outward investment limit.

Outward investments refer to the following: (a) debt and equity securities issued

offshore by non-residents, including depositary receipts; (b) offshore foreigncurrency-denominated mutual funds and UITFs; (c) foreigncurrency-denominated intercompany loans to offshore parentcompanies/subsidiaries of residents with an original tenor of at leastone (1) year; and (d) investments in real property abroad, includingcondominium units.

Residents may also purchase up to US$60 million for investments in thefollowing: (a) bonds/notes of the Republic of the Philippines or other Philippineresident entities issued offshore, including peso-denominated bonds/notesrequiring settlement in foreign currency; (b) bonds/notes held for sale/trading by

banks operating in the Philippines; and (c) equity securities issued by residentsand listed abroad. Such purchases shall be consolidated with FX purchases foroutward investments mentioned in the first paragraph above for purposes ofdetermining compliance with the allowed limit, and supported by documentaryrequirements.

Divestment proceeds and dividends/earnings from aforesaid investments thatwere funded with FX purchased from AABs or AAB-forex corps need not beinwardly remitted.

50. What do es in tercom pany lo an und er Sec t ion 44.2 .c ( Inves tm ents byPhi l ipp ine Res idents Outward in ves tments by res idents ) of the FXManua l con templa te?

Intercompany loans contemplated in Section 44.2.c of the FX Manual, asamended, are those granted by resident parent companies/subsidiaries totheir non-resident parent companies/ subsidiaries; loans to offshore affiliatecompanies of residents are not included.

III. OTHERS

51. What ru les govern FX swap t ransac t ions , spec i f i ca l l y tho se invo lv ingFX purchase at the f i rs t leg and FX sa le at the second leg wi thfore ign / fo re ign cur rency loans and/or inward fore ign inves tment as

und er ly i ng t ransac t i ons?

The first leg of the swap will be subject to the banks Know Your Customerpolicy and existing regulations on anti-money laundering. The second leg ofthe swap will be subject to the swap contract between the counterparties.However, for swaps covering foreign/foreign currency loans and inwardinvestments, the minimum documentary requirements for the sale of FXunder Appendix 1 of the Manual shall also apply, and thus, must be

presented to the bank counterparty prior to delivery, at any time under theforward leg of the swap, of foreign exchange by the bank to its client.


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22

For this purpose, the swap contract must include a statement that: Thereshall be no delivery of FX at any time under the swap contract unless theforeign/foreign currency loans/inward investments are duly registered with

the BSP or a custodian bank.19

52. What ru les govern cro ss -cur rency sw aps (CCS)?

Cross currency swap is defined as an arrangement in which two partiesexchange a series of cash flows in one (1) currency for a series of cashflows in another currency at a specified exchange and/or interest rates andat agreed intervals over an agreed period. The rules on FX swaps includingitem D, Appendix 18 of the FX Manual also apply to CCS.20

19 Circular No. 818 dated 6 November 2013

20 Op. cit.