Manual of Regulations on Foreign Exchange Transactions

Manual of Regulations for Banks

PART FIVE

Sections 1 - 210.12.31

MANUAL OF REGULATIONS ONFOREIGN EXCHANGE TRANSACTIONS

PART ONE. CURRENT ACCOUNTS

Chapter I

NON-TRADE FOREIGN EXCHANGERECEIPTS AND DISBURSEMENTS,

CROSS-BORDER TRANSFER OF LOCALAND FOREIGN CURRENCIES, AND

GOLD TRANSACTIONS

Section 1. Disposition of Foreign ExchangeReceipts. Foreign exchange receipts,acquisitions or earnings of residents fromnon-trade sources may be used freely forany purpose. Such proceeds may, at the optionof said residents, be sold for pesos, retainedor deposited in foreign currency accounts,whether in the Philippines or abroad.

Resident shall refer to:a. an individual citizen of the

Philippines residing therein; orb. an individual who is not a citizen

of the Philippines but is permanentlyresiding1 therein; or

c. a corporation or other juridicalperson organized under the laws of thePhilippines; or

d. a branch, subsidiary, affiliate,extension office or any other unit ofcorporations or juridical persons which areorganized under the laws of any country andoperating in the Philippines, except OBUs.

Non-resident shall refer to anindividual, a corporation or other juridicalperson not included in the definition ofresident.

Section 2. Sale of Foreign Exchange toResidents by AABs and AAB-Forex Corps

for Non-Trade Current AccountTransactions with Non-Residents. AABsand AAB-forex corps may sell foreignexchange to residents to cover paymentsto non-resident beneficiaries for non-tradecurrent account purposes (e.g.,educational expenses, medical expenses,travel expenses and salaries of foreignexpatriates) other than those relating toforeign/foreign currency loans andinvestments, without need for prior BSPapproval, subject to the the submission/presentation of the following to the foreignexchange selling institution:

1. For sales not exceeding USD60,000or its equivalent in other foreign currency

- Duly accomplished application topurchase foreign exchange using theprescribed format (Annex A);

2. For sales exceeding USD60,000 orits equivalent in other foreign currency

- Duly accomplished application topurchase foreign exchange using theprescribed format (Annex A) andsupported by documents prescribed underItem "A" of Appendix 1.

The authority to purchase foreignexchange for non-trade current accountpurposes does not include purchases offoreign exchange for direct credit to ordeposit in the purchasers’ foreign currencydeposit unit account.

All foreign exchange purchases for non-trade current account transactions shall bedirectly remitted to the intended non-resident beneficiary’s account (whetheroffshore or onshore). Exceptions to this ruleinclude travel funds, medical expensesabroad not yet incurred, and sales proceeds

1 Residents include any individual, citizen or otherwise, who has resided in the Philippines for a year or longer, as definedin Section 83 of the International Monetary Fund (IMF) Balance of Payments Textbook, 1996.

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of emigrant’s domestic assets if emigrant isstill in the country.(As amended by Circular No. 698 dated 05 November 2010)

Section 3. Sale of Foreign Exchange to Non-Resident Tourists/Balikbayans by AABs andAAB-Forex Corps. AABs and AAB-forexcorps may sell foreign exchange to non-resident tourists or balikbayans to the extentof the amount shown to have been sold bythem for pesos to said entities. Departingnon-resident tourists or balikbayans mayreconvert at airports or other ports of exitunspent pesos to a maximum of USD5,000or its equivalent in other foreign currencycalculated at prevailing exchange rates,without showing proof/s of previous sale offoreign exchange for pesos.(As amended by Circular No. 698 dated 05 November 2010)

Section 4. Cross-Border Transfer of Localand Foreign Currencies

1. Local Currency. No person mayimport or export nor bring with him into ortake out of the country, or electronicallytransfer, legal tender Philippine notes andcoins, checks, money order and other billsof exchange drawn in pesos against banksoperating in the Philippines in an amountexceeding PHP10,000.00 withoutauthorization by the BSP.

The term “electronic transfer” as usedherein shall mean a system where theauthority to debit or credit an account (bank,business or individual) is provided by wire,with or without a source document beingmailed to evidence the authority.

2. Foreign Currency. Any person, whobrings into or takes out of the Philippinesforeign currency, as well as other foreigncurrency-denominated bearer monetaryinstruments, in excess of USD10,000 or itsequivalent, is required to declare the samein writing and to furnish information on thesource and purpose of the transport of suchcurrency or monetary instrument.

As used herein, “other foreign currency-

denominated bearer monetary instruments”shall refer to the following foreignexchange-denominated instruments inbearer form whereby title thereto passes toanother by endorsement, assignment ordelivery: travelers’ checks, other checks,drafts, notes, money orders, bonds, depositcertificates, securities, commercial papers,trust certificates, custodial receipts, depositsubstitute instruments, trading orders,transaction tickets and confirmation of sale/investment.

Section 5. Buying and Selling of Gold byResidents

1. Except as provided in this Manual,gold and gold-bearing metals may bebought and sold without specific approvalof the BSP.

2. Gold from small-scale mining,including panned-gold, shall be sold to theBSP pursuant to Republic Act No. 7076(People’s Small-Scale Mining Act of 1991)dated 27 June 1991. All other forms or typesof gold may, at the option of the owner orproducer thereof and with the consent ofthe BSP, be sold and delivered to the BSP.

The BSP may sell gold grains/pellets/bars and sheets to local jewelrymanufacturers and other industrial usersupon application, or to banks exclusivelyfor re-sale to jewelry manufacturers/industrial users, at the BSP’s gold-sellingprice plus a service fee to cover costsincluding cost of conversion and packaging.

Chapter II

FOREIGN MERCHANDISE TRADETRANSACTIONS

A. IMPORT TRADE TRANSACTIONS

Section 6. General Policy. As a generalrule, all kinds of merchandise imports areallowed. However, the importation ofcertain commodities are regulated or

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prohibited for reasons of public health andsafety, national security, internationalcommitments, and development/rationalization of local industry.

Foreign exchange purchased fromAABs/AAB-forex corps to serviceimportations shall be directly remitted to thenon-resident beneficiary on the date ofpurchase. However, foreign exchangepurchases may be credited to FCDU depositaccounts of the importer pending remittanceto the non-resident beneficiary: Provided,That the importer shall execute a waiver ofthe requirements of R.A. No. 6426 (ForeignCurrency Deposit Act) dated 04 April 1974,as amended, on the secrecy of foreigncurrency deposits upon purchase of foreignexchange to enable the BSP to validate theauthenticity of the credits and eventualremittance of the funds.(As amended by Circular No. 742 dated 21 November 2011)

Section 7. Classification of ImportsImports are classified as follows:

1. Freely Importable Commodities.These are commodities the importation ofwhich is neither regulated nor prohibitedas defined under (2) and (3) hereunder. Theimportation may be effected without theprior approval of or clearance from anygovernment agency.

2. Regulated Commodities. These arecommodities, listed in Appendix 2, theimportation of which requires clearances/permits from appropriate governmentagencies including the BSP.

3. Prohibited Commodities. These arecommodities, listed in Appendices 3 and3.1, the importation of which is not allowedunder existing laws.

Section 8. Modes of Payment for ImportsAABs and AAB-forex corps may sell foreignexchange to service payments for importsunder any of the following arrangementssubject to the provisions of Sections 9 to 13and the guidelines covering the sale of

foreign exchange for trade transactionsunder Appendix 4:

1. Letter of Credit (L/C);2. Documents Against Payment (D/P);3. Documents Against Acceptance (D/A);4. Open Account (O/A);5. Direct Remittance (DR); and6. Advance Payment.

Section 9. Letter of Credit (L/C)1. All L/Cs must be opened on or before

the date of shipment and only one (1) L/Cshould be opened for each importtransaction. For purposes of opening an L/C,importers shall submit to the AAB thedocuments listed in Appendix 5.Amendments of L/Cs need not be referredto the BSP for prior approval. L/Cs shallbe negotiated in accordance with the termsand conditions set forth in the L/C and shallbe governed by the Uniform Customs andPractices on Documentary Credits.

2. Deferred L/Cs shall be governed bythe pertinent provisions of Part Two,Chapter 1 hereof (Loans and Guarantees).For this purpose, deferred L/Cs refer to thosewith payment terms of more than one yearreckoned from initial shipment date.(As amended by Circular No. 742 dated 21 November 2011)

Section 10. Documents Against Payment (D/P)1. Under the D/P arrangement, AABs

shall advise the importer of the receipt ofthe complete original shipping documentsand effect the release of said documents tothe importer upon receipt of payment.

2. AABs shall remit payment to thesupplier through the correspondent bankabroad.

Section 11. Documents Against Acceptance(D/A) and Open Account (O/A)Arrangements. Under a D/A arrangement, theoriginal shipping documents are releasedto the importer by the AAB concerned atthe instance of the seller’s bank upon theimporter’s acceptance of the seller’s bill of

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exchange obligating the importer to pay forthe shipment at some future date. Under anO/A arrangement, the said documents arereleased by the seller directly to the importerwithout coursing the documents through thebanks, upon the importer’s promise to payat some future date. As used herein, animport transaction to be considered underD/A or O/A must be payable at least 30 daysafter bill of lading (B/L) or airway bill (AWB)shipment date.

The guidelines for reporting, paymentsand extensions of imports under D/A or O/Aarrangements are shown in Appendix 6.

Section 12. Direct Remittance (DR). AABsand AAB-forex corps may service withintwenty nine (29) calendar days after B/L orAWB shipment date applications for directremittance of import payments uponpresentation of the complete originalshipping documents, in accordance withexisting rules, and if applicable, importclearance, for regulated items issued byconcerned government agencies. If the 29thday falls on a non-banking day, the followingbanking day shall apply and the importationwill still be considered DR.

Section 13. Advance Payment. AABs andAAB-forex corps may sell foreign exchangeto importers without prior BSP approval, foradvance payment for importations subjectto the guidelines under Appendix 7 hereof,including documents prescribed thereunder.The foreign exchange selling/remitting AABshall report these transactions to the BSP-International Operations Department (IOD)using the prescribed forms (Annexes B andC). All applications to purchase foreignexchange in excess of USD1.0 million orits equivalent in other foreign currency toservice advance payment for importationshall be filed directly with the BSP-IOD forprior approval.(As amended by Circular Nos. 742 dated 21 November 2011and Circular No. 698 dated 05 November 2010)

Section 14. Other Import ArrangementsThe following import arrangements are alsoallowed without prior BSP approval:

1. Self-Funded/”No Dollar” Imports.These are imports funded by importer’s ownforeign currency deposit accounts or thosesent by suppliers abroad for which nopayment in foreign exchange will be madewhether immediate or potential.

2. Importations on Consignment Basis.These are importations by export producersof raw materials and accessories/suppliesfrom foreign suppliers/buyers abroad for themanufacture or processing of productsdestined for export to said foreign suppliers/buyers. These shall also include machinery/equipment and spare parts consigned to thelocal manufacturer/processor for eventualre-export to the consignor: Provided, Thatthe equipment involved shall be used onlyin connection with the processing ofproducts for export.

B. EXPORT TRADE TRANSACTIONS

Section 15. General Policy. It is the policyof the BSP to encourage commodity exportswhich generate foreign exchange earningsfor the country. Accordingly, commodityexports are allowed without restrictionexcept for certain commodities which areregulated or prohibited for reasons ofnational interest or by provision of law.

Section 16. Classification of Exports1. Freely Exportable Commodities.

These are commodities the exportation ofwhich is neither regulated nor prohibited.They may be effected without prior approvalof or clearance from any governmentagency.

2. Regulated Commodities. These arecommodities the exportation of whichrequires clearances/permits fromappropriate products with the appropriategovernment agencies/offices is shown inAppendix 8.

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3. Prohibited Exports. These arecommodities the exportation or sale ofwhich is prohibited/penalized by law(Appendix 9).

Section 17. Export DeclarationAll export shipments shall be covered

by an Export Declaration using theprescribed form. AABs or OBUs shallrequire submission, for record purposes, ofa copy of the duly accomplished ExportDeclaration form if the export negotiationor payment of the pertinent export shipmentis coursed through them.

Section 18. Modes and Currency ofPayment

1. Authorized Modes. Payments forexports may be made under any of thefollowing modes without prior BSPapproval:

a. Letter of Credit (L/C);b. Documents Against Payment (D/P)/

Cash Against Documents (CAD);c. Documents Against Acceptance (D/A);d. Open Account (O/A);e. Intercompany Open Account Offset

(Interco O/A) Arrangement (can be availedof only by firms with parent/affiliaterelationship abroad); and

f. Consignment.2. Other Authorized Modes. Payments

for exports may also be made through exportadvances without prior approval of the BSP.Export advances shall refer to all payments/remittances received before shipment,including prepayments and Red Clauseadvances.

Bank draft/telegraphic transfer, buyer’schecks, traveler’s checks or acceptableforeign currency notes may be used inprepayment/export advance, but for buyer’schecks, the same shall be cleared beforeshipment.

3. Acceptable Currenciesa. Payments for exports may be made

in the following currencies:

1) U.S. dollar2) Japanese yen3) Pound sterling4) Euro5) Hong Kong dollar6) Swiss franc7) Canadian dollar8) Singapore dollar9) Australian dollar10) Saudi riyal11) Bahrain dinar12) Brunei dollar13) Indonesian rupiah14) Thai baht15) United Arab Emirates dirham16) Chinese renminbi or yuan17) Korean won18) Such other currencies that may be

declared acceptable by the BSPb. Payments may, however, be made

in Philippine pesos for the following:1) Exports to ASEAN countries:

Provided, That the BSP shall not be askedto intervene in the clearing of any balancesfrom this payments scheme; and

2) Gold sales to the BSP which areconsidered as constructive exports.

Section 19. Negotiation ProceduresThe exporter shall negotiate his bill of

exchange/account with the AAB or OBUtogether with the bill of lading (B/L)/airwaybill (AWB), signed commercial invoice andother documents as required.

In case of availments of exportadvances, the AAB through which theavailment was made must also be the samebank to negotiate the export documents.

Section 20. Disposition of ExportProceeds. Foreign exchange receipts,acquisitions or earnings of residents fromexports may be used freely for anypurpose. Such proceeds may, at the optionof the exporter, be sold for pesos, retained,or deposited in foreign currency accounts,whether in the Philippines or abroad.

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Section 21. Gold and Constructive Exports1. Gold. All exports of gold in any

form may be allowed except for gold fromsmall-scale mining, including panned gold,which is required to be sold to the BSPpursuant to Republic Act No. 7076.

2. Constructive Exports. The followingsales of residents paid for in foreign currencyshall be considered as constructive exports:

a. Gold sales to the BSP even if paidfor in Philippine currency;

b. Sales of residents paid for in foreigncurrency to the following entities:

1) Bonded manufacturing warehousesof export producers/manufacturers;

2) Export processing zones;3) Board of Investments (BOI)-

registered export traders operating bondedtrading warehouses supplying raw materialsused in the manufacture of export products;

4) Diplomatic missions in thePhilippines;

5) Duty Free Philippines, Inc. (DFP); and6) Foreign buyers of goods/products to

be delivered directly to local consumers atthe instruction of the former and paid for inforeign currency.

An Export Declaration for each saleshall be accomplished: Provided, That theexporter shall submit a delivery receipt signedby the buyer in lieu of the B/L or AWB.

PART TWO. CAPITAL ACCOUNTS

Chapter I

LOANS AND GUARANTEES

Section 22. The BSP shall regulate foreign/foreign currency loans to ensure thatprincipal and interest owed to creditors canbe serviced in an orderly manner and withdue regard to the economy’s overall debtservicing capacity. All public and publicly-guaranteed private sector obligations fromforeign creditors, OBUs and ForeignCurrency Deposit Units (FCDUs)/Expanded

Foreign Currency Deposit Units (EFCDUs)of banks shall be referred to the BSP for priorapproval, unless otherwise indicated herein.Other private sector loans from thesecreditors and other financing schemes/arrangements shall require prior approvaland/or registration by the BSP if these willultimately involve foreign exchangepurchased from AABs or AAB-forex corps.

1. The required BSP approval shall beobtained as follows:

a. For public sector loans – Applicationsfor loan approval shall be filed with the BSPusing the prescribed form (Annex D.1)together with all the required supportingd o c u m e n t s / i n f o r m a t i o n , b e f o r ecommencement of actual negotiations, orbefore issuing a mandate of commitment toforeign funders/arrangers; and

b. For private sector loans – Applicationsfor loan approval shall be filed with the BSPusing the prescribed form (Annex D.2)together with all the required supportingdocuments/information, at least thirty (30)banking days before the target signing dateof the loan documents and/or initialdrawdown date, whichever is earlier.

2. Resident companies/entitiesintending to obtain medium- and long-termforeign loans or issue bonds/notes/debtsecurities offshore shall submit to the BSP-IOD their annual foreign borrowings planas follows:

a. Public sector entities, including theNational Government – every end-September for borrowings for the followingyear, regardless of amount; and

b. Private sector entities, with plannedaggregate annual borrowing of at leaseUSD10 million, or its equivalent - everyend-September for borrowings for thefollowing year.

The timetable and any changes on thesubmitted foreign borrowings plan shall becommunicated to the BSP-IOD within two(2) weeks upon availability of informationfor monitoring and programming purposes.

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3. Private sector loans that are submittedto the BSP for approval or registration thatwere not included under a foreignborrowings plan as required in Item 2 ofthis Section shall be assessed an additionalfee equivalent to ten percent (10%) of theapplicable processing fee for BSP approval/registration, as indicated under Appendix20.

4. For statistical purposes, all foreignloans obtained by private sector entities,whether or not these are BSP-approved/registered, shall be regularly reported to theBSP-IOD, using the prescribed forms(Annexes E.1 and E.2) within the requireddeadline until the obligations are fullyextinguished.

5. AABs shall not extend peso financingto non-residents unless explicitly allowedunder existing BSP rules.(As amended by Circular No. 742 dated 21 November 2011)

Section 23. Loans Requiring Prior BSPApproval. Prior BSP approval shall berequired for the following loans:

1. Loans of the following public sectorentities irrespective of maturity, creditor andthe source of foreign exchange for servicingthereof, except short-term FCDU/EFCDUloans covered by Section 24.4:

a. National Government, its agenciesand instrumentalities;

b. Government-owned/controlledcorporations (GOCCs);

c. Government financial institutions(GFIs), except short-term normal interbankborrowings;

d. Local government units (LGUs); ande. Other public sector entities.2. Loans of the private sector irrespective

of maturity, creditor and the source offoreign exchange for servicing thereof if:

a. guaranteed by governmentcorporations and/or government financialinstitutions;

b. covered by foreign exchangeguarantees issued by AABs; and

c. to be granted by FCDUs/EFCDUsand specifically or directly funded from, orcollateralized by offshore loans or deposits.

3. Loans with maturities exceeding one(1) year to be obtained by private non-bankfinancial institutions intended for relendingto public or private sector enterprises.

4. Other loans irrespective of maturityand currency if to be serviced using foreignexchange purchased by the borrower/creditor/guarantor from AABs or AAB-forexcorps and not covered by Section 24.

Applications submitted to the BSP withsigned loan documents and/or loan proceedsalready drawn shall no longer be eligiblefor BSP approval and registration.(As amended by Circular No. 742 dated 21 November 2011)

Section 24. Loans Not Requiring Prior BSPApproval. The following loans may begranted without prior approval of the BSP:

1. a. Loans of resident private sectorborrowers from FCDUs/EFCDUs/offshoresources, irrespective of maturity, that willbe serviced using foreign exchangepurchased from entities that are not AABsor AAB-forex corps.

b. Loans of non-residents fromFCDUs/ EFCDUs, irrespective of maturity:Provided, That the loan shall be servicedusing foreign exchange purchased fromentities that are not AABs or AAB-forex corps.

2. Short-term loans of financialinstitutions, both public and private fornormal interbank transactions, e.g.,interbank call loans.

Short-term loans of the private sector inthe form of export advances from buyersabroad.

4. Short-term loans of the followingprivate and public sector borrowers fromFCDUs/EFCDUs:

a. Commodity and service exporters:Provided, That these loans are used tofinance export-related import costs of goodsand services as well as peso costrequirements.

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Service exporters shall refer toPhilippine residents engaged or proposingto engage in rendering technical,professional or other services which arepaid for in foreign exchange.

Indirect exporters may likewise borrowto fund export-related costs, which mayinclude both foreign exchange as well aspeso costs. Indirect exporters shall refer tocottage/small and medium industries(producers/manufacturers) that have supplyarrangements with direct exporters who areholders of an export letter of credit or aconfirmed purchase order/sales contractfrom a foreign buyer.

b. Producers/manufacturers, includingoil companies and public utility concerns:Provided, That the loans are used to financeimport costs of goods and services necessaryin the production of goods by the borrowerconcerned. Producers/manufacturers shallrefer to persons or entities that undertakethe processing/conversion of raw materialsinto marketable form through physical,mechanical, chemical, or other means or byspecial treatment or a series of actions thatresult in a change in the nature or state ofthe products.

Public utility firms shall refer to businessorganizations that regularly supply the publicwith commodities or services such aselectricity, gas, water, transportation,telegraph/telephone services and the like.

5. Short-term loans of privateexporters/importers from OBUs and foreignbanks with branches in the Philippines:Provided, That:

a. The loans are not covered by aguarantee from a government financialinstitution/corporation;

b. The loans shall be exclusively usedto finance specific trade transactions, i.e.,to liquidate/pay for import obligations and/or in the case of export financingtransactions, to fund the borrower’spre-export financing requirements and shall

not be refinanced by a medium- /long-termforeign currency loan;

c. Proceeds of loans intended to payfor foreign exchange requirements may bepaid directly to the supplier/creditor, whileamounts intended to fund pre-export pesocosts shall be inwardly remitted and soldfor pesos to AABs;

d. Drawdown and registrationrequirements under Sections 27 and 28hereof shall be complied with;

e. Any assignment of the loan by thecreditor concerned shall be reported to theBSP within five (5) days from date ofassignment;

f. Creditor banks shall submit thefollowing reports to the BSP:

i. Their lending program for privatesector borrowers for the next six (6) monthsindicating their proposed credit limittogether with a list of prospective borrowers/beneficiaries; and

ii. Monthly report on loans grantedto residents using Schedule 4A (Part I)& 4B (Part II) - Consolidated Reporton Loans Granted by OBUs to Residents- to the “Statement of Assets andLiabilities” of OBUs, and similar reportsby foreign banks with branches in thePhilippines.

g. The borrowers shall submit monthlyreports on transactions and status of theirshort-term loans within three (3) bankingdays after end of reference month using theprescribed form (Annex F).

6. Short-term loans of privateexporters/importers from other offshoresources/creditors: Provided, That allprovisions of Section 24.5 are compliedwith, except Item (f), and that the loans shallbe granted against BSP-approved short-termrelending programs of foreign creditors.Creditors shall submit to the BSP forapproval their short-term relending programfor Philippine borrowers indicating theirproposed credit limit together with a list of

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prospective borrowers/beneficiaries. Theserelending programs shall be valid for one(1) year.

7. Private sector loans not guaranteedby foreign governments/official export creditagencies covering importation of freelyimportable commodities under deferredL/Cs or D/A-O/A arrangements with a termof more than one (1) year.

8. Private sector intercompany loansgranted by foreign companies to their localbranches/subsidiaries, irrespective ofamount and maturity: Provided, That theseare used to finance eligible projects/costscited under Section 25. For purposes ofthis Item, intercompany loans shallinclude those granted by foreign branchesand wholly-owned subsidiaries of aforeign parent company as well as othersubsidiaries of the parent company butshall exclude those loans that are intendedto refinance exist ing obligations:Provided, That, in the case of othersubsidiaries, the loan/s shall be fullyguaranteed by the parent company.

9. Loans of resident private sectorborrowers from FCDUs/EFCDUs/offshoresources that are not publicly-guaranteedto finance infrastructure projects includedin the Government’s list of Public PrivatePartnership (PPP) projects. The exemptionof these loans from prior BSP approvalshall be valid up to three (3) yearsreckoned from 10 December 2011.(As amended by Circular No. 742 dated 21 November 2011)

Section 25. Projects/Costs Eligible forForeign Financing

1. Loans submitted for prior BSPapproval shall finance the following typesof projects/activities:

a. Export-oriented projects;b. Projects registered with the BOI;c. Priority investment areas under the

current Investment Priorities Plan (IPP);d. Activities listed in the current

Medium-Term Public Investment Program(MTPIP);

e. Development of industrial estatesand economic zones;

f. Socialized/Low-cost housingprojects;

g. Acquisition of non-performingassets/loans (NPAs/NPLs) of banks andother GFIs;

h. Acquisition of government assetsapproved for privatization;

i. Other projects that may bedeclared priority under the country’ssocio-economic development plan by theNational Economic and DevelopmentAuthority or by Congress;

j. Refinancing of existing loans usedfor eligible projects/costs which are eligiblefor servicing using foreign exchange sourcedfrom AABs or AAB-forex corps.; and

k. Microfinance activities.2. Short-term loans shall finance

exclusively foreign exchange requirementsof eligible projects, except as may bespecifically allowed under this Manual.Medium- and long-term loans may financeforeign exchange costs as well as peso costs(excluding working capital) of eligibleprojects.(As amended by Circular No. 742 dated 21 November 2011)

Section 26. Terms of Loans1. Loans shall have terms reflective of

those prevailing in the international capitalmarkets.

2. Terms of loans to be obtained bythe National Government and other publicsector entities shall be in accordance withthe provisions of pert inent laws/regulations governing public sectorborrowings.

3. The Monetary Board may requirelonger grace/maturity periods for mediumand long-term loans involving large amountsto reduce the impact thereof on debtservicing.

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Section 27. Drawdown/Availment onLoans. Loans intended to be serviced usingforeign exchange purchased from AABs orAAB-forex corps shall comply with thefollowing procedures/conditions fordrawdown:

1. Loan proceeds shall be used solelyfor the purpose/s as approved by the BSP orconsidered eligible for foreign financingunder the rules herein.

2. Loan proceeds intended to fundlocal costs (i.e., those payable to residents)shall be inwardly remitted and sold for pesosto AABs.

3. Amounts intended to financeforeign exchange costs (i.e., those payableto non-residents) need not be inwardlyremitted but may either be paid directly tothe non-resident supplier/beneficiaryconcerned or deposited in a foreignexchange account pending utilization of thefunds unless covered by Section 27.4.

4. Pending utilization, foreignexchange proceeds of loans and bond/noteissues of the public sector shall be depositedwith the BSP pursuant to Section 113 ofRepublic Act No. 7653 (The New CentralBank Act) dated 14 June 1993.

Section 28. Registration of Loans1. Loans shall be registered with the

BSP to be eligible for servicing using foreignexchange purchased from AABs or AAB-forex corps. Applications for registration ofprivate sector loans shall be filed by theborrower with the BSP within ten (10)banking days from drawdown date forshort-term loans and three (3) months fromutilization of loan proceeds for medium andlong-term loans using the prescribed forms(Annex D.2). Private sector loans that do notrequire prior BSP approval but are submittedto the BSP for registration shall be chargeda processing fee indicated in Appendix 20.Public sector loans extended final approval

by the Monetary Board are deemedregistered.

2. Loans shall be registered by the BSPupon the borrower’s compliance with theterms and conditions imposed under the BSPapproval of the loan and/or pertinentprovisions of this Manual, includingsubmission of required documents andinformation.

3. Loans granted under Sections 24.4and 24.5 that are duly reported to the BSPusing the prescribed forms (IOS Form 4 andSchedule 4A (Part I) & 4B (Part II)-Consolidated Report on Loans Granted byOBUs to Residents, respectively) aredeemed registered.

4. Loans requiring prior BSP approvalwhich have been signed and/or drawn/availed of prior to securing the requisiteapproval shall not be eligible for registrationand subsequent servicing using foreignexchange purchased from AABs or AAB-forex corps.(As amended by Circular No. 742 dated 21 November 2011)

Section 29. Servicing of Loans1

1. All foreign exchange purchases fromAABs or AAB-forex corps for servicing offoreign/foreign currency loans shall bedirectly remitted to the creditor/beneficiaryconcerned on the day of purchase, unlessotherwise explicitly allowed by BSP.

2. Payments for principal, interest, feesand related charges on loans duly registeredwith the BSP may be remitted through AABsas these fall due without prior BSP approvalprovided such interest, fees and charges areindicated in the BSP registration document,and upon presentation of documentsprescribed under Item B of Appendix 1hereof.

3. Payments for the following shall,however, be subject to prior BSP approval:

a. Prepayment of public sector/publicly guaranteed private sector loans;

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1 Guidelines on the three (3) months temporary window for the purchase of FX to service unregisteredprivate sector foreign loans issued under Cir. 741 dated 17 November 2011

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b. All loans that are past due for morethan thirty (30) calendar days reckoned asfollows:

(1) For short-term loans, from the 360thday after availment; and

(2) For MLT loans, from originalmaturity date.

c. Other loan-related fees/charges notauthorized by the BSP; and

d. Loans covered by officialrescheduling with Paris Club creditors.

4. AABs and AAB-forex corps may sellforeign exchange for prepayments (i.e.,payments before original due dates) of MLTprivate sector loans (including bonds andnotes) that are not publicly-guaranteed andare covered by a BSP registration document(BSRD) without prior BSP approval, subjectto the following conditions:

a. The borrower shall submit to the BSP-IOD a notice of their intention to prepay atleast one (1) month prior to the targetprepayment date indicating the following:name of creditor, BSP registration numberfor the loan, date of prepayment, amount tobe prepaid in original currency, andremittance instructions (e.g., account numberand recipient bank for the prepayment). Afterpayment, the borrower shall submit to theBSP-IOD, proof/s of the payment made,together with copy of the duly stamped BSRDand its Form 2 report (Annex E.2)

b. The foreign exchange selling AAB/AAB-forex corp shall require thepresentation by the borrower of documentsprescribed under Item B, Appendix 1 hereof.

c. The foreign exchange purchases shallnot exceed USD 50.0 million per day,provided that the total foreign exchangepurchases shall not at any case exceed theamount to be prepaid. The daily limit shallbe subject to periodic review to take intoconsideration prevailing conditions; revisedlimits shall be duly disseminated by the BSP.

d. Advance foreign exchange purchasesshall be deposited in the borrower’s FCDU/offshore account pending remittance of the

full amount to the creditor at the targetprepayment date.

e. The foreign exchange selling institutionshall see to it that documents evidencingpayment of applicable documentary stamptax, if any, are presented/available.

f. The foreign exchange sold shall beduly reported by the foreign exchange-sellingAAB under FX Form 1 (Consolidated Reporton Foreign Exchange Assets & Liabilities)-Schedule 4 following the deadline forsubmission of FX Form 1.

5. Applications to purchase foreignexchange for servicing of loan-relatedpayments shall be submitted to any AAB orAAB-forex corp. using the prescribed form(Annex A) and supported by documentsprescribed under Item B, Appendix 1 hereof.

6. AABs and AAB-forex corps shall notsell foreign exchange to residents forpayment of foreign exchange obligations toresidents other than AABs.

7. All loan payments made, irrespectiveof the source of the foreign exchange used,shall be reported by the borrower concernedto BSP-IOD using the prescribed form(Annex E.2).(As amended by Circular Nos. 741 dated 17 November 2011 and698 dated 05 November 2010)

Section 30. Approval/Registration andServicing of Guarantees

1. The following guarantees shallrequire prior BSP approval:

a. Guarantees for account of thepublic sector as well as those to be issuedby government-owned and controlledcorporations in favor of non-residents; and

b. Guarantees issued by foreign banksand financial institutions to secureobligations of residents partaking the natureof a foreign loan which require prior BSPapproval pursuant to Section 23.

2. The following guarantees, includingrisk take-over and similar arrangements, foraccount of the private sector shall notrequire prior BSP approval and registration

Sections 29 - 3010.12.31

Part V- Page 11


but shall be reported to the BSP by AABs as issuer/beneficiary using the prescribed form (Annex Gif issuer or Annex H if beneficiary) to be eligiblefor servicing using foreign exchange purchasedfrom AABs or AAB-forex corps in the event ofdefault by the principal obligor:

a. Guarantees to be issued by local banksand other financial institutions, includinggovernment financial institutions, in favor ofnon-residents such as:

1) Payment guarantees (e.g., bid bonds,performance bonds, advance payment bonds);and

2) Guarantees to secure foreignobligations of residents which do not partakethe nature of a foreign loan.

b. Guarantees to be issued by foreignbanks and financial institutions as well as otherforeign entities to secure peso loans/FCDUloans authorized under Section 24.4. Proceedsof guarantees where the beneficiary is aresident shall be inwardly-remitted and soldto AABs for pesos.

As a prerequisite to the issuance ofguarantees under Item a, the followingdocuments shall be submitted to the guarantor:

a. Registration papers of domesticaccountee with the Securities and ExchangeCommission (SEC) (for corporation/partnership) or with the Bureau of DomesticTrade (BDT) of the Department of Trade andIndustry (DTI) (for single proprietorship); and

b. Contract and/or other documents whichserve as basis for the issuance of the guarantee.

3. Other guarantees or similararrangements which may give rise to actualforeign obligations shall require prior BSPapproval to be eligible for servicing usingforeign exchange purchased from AABs orAAB-forex corps.

4. Fees and charges on guarantees shallbe reflective of prevailing market terms:Provided, That guarantees issued by parentcompanies to their affiliates shall not becharged any fee.

5. Any payments relative to BSPregistered guarantees may be remitted by AABsas they fall due without prior BSP approval. Anyforeign liability arising from a call on theguarantee shall require prior BSP approval, ifto be serviced using foreign exchangepurchased from AABs or AAB-forex corps.

Section 31. Approval/Registration and Servicingof Other Financing Schemes/Arrangements

1. Financing schemes which wouldinvolve option to purchase arrangement ortransfer of ownership after a certain period oftime as in the case of Build-Operate-Transfer(BOT), Build and Transfer (BT) arrangementsshall be registered with the BSP to be eligiblefor servicing using foreign exchange purchasedfrom AABs or AAB-forex corps. Applicationsfor registration shall be filed by theimplementing agency/proponent with the BSPwithin one month from contract signing.

Implementing agencies/proponents ofprojects under BOT/similar financingarrangements shall submit to the BSP thefollowing reports:

a. Yearly Projected FundingRequirements for BOT/Other SimilarFinancing Schemes (Annex I), on or beforeSeptember 30 of the year preceding thereference period; and

b. Monthly Report on payment underBOT/Other Similar Financing Schemes(Annex J) within ten (10) working days fromend of reference month.

2. Offshore issuances of peso-denominated instruments1 involving:

a. inward remittance of foreignexchange to the Philippines and sale thereoffor pesos to AABs; or

b. a resident enterprise or any of itsoffshore offices, branches, subsidiaries andaffiliates, which will participate in suchtransactions as an issuer, guarantor orbeneficiary, and where proceeds shall be lentto or invested in resident companies.

Sections 30 - 3111.12.31

Part V- Page 12

1 Under Circular Letter No. CL-2011-14, dated 03 March 2011, this provision covers all offshore issuances byresidents of peso-denominated bonds/notes and similar instruments, whether to be settled in pesos or foreigncurrency and thus, require BSP approval (regardless of the source of foreign exchange for servicing of the

obligation) prior to launching/signing of agreements/receipt of proceeds.


The approval of said instruments shallbe subject to the following conditions:

a. the transaction shall not involveimport or export of Philippine currencywhether physically or electronically; and

b. compliance with pertinent rules andregulations of the Bangko Sentral (includingreportorial requirements) and other regulatory/government agencies/entities includingapproval by the Department of Finance(DOF) in the case of supranational issuers.

3. Non-residents’ issuance of notes/bonds or similar instruments in the domesticmarket, shall require Bangko Sentralapproval before execution thereof.

Chapter II

FOREIGN INVESTMENTS

Section 32. General Policy. The BangkoSentral supports the country’s policy toencourage inward foreign investments. Saidinvestments need not be registered with theBangko Sentral unless the foreign exchangeneeded to service the repatriation of capitaland the remittance of dividends, profits andearnings which accrue thereon shall bepurchased from AABs or AAB-forex corps.

As a matter of policy, non-residents arenot allowed to invest, whether directly orindirectly, in the Special Deposit Account(SDA) facility of the Bangko Sentral.6

Section 33. Categories of Inward ForeignInvestments. For purposes of registration,foreign investments may be in the form of:(1) foreign direct investments in Philippinefirms or enterprises; (2) investments in peso-denominated government securities;(3) investments in securities listed in thePhilippine Stock Exchange (PSE);(4) investments in peso-denominated moneymarket instruments; and (5) investments inpeso time deposits with AABs with a minimummaturity of ninety (90) days.

Section 34. Inward Foreign DirectInvestments. Inward foreign direct investmentsmay be in cash or in kind. For registrationpurposes, foreign exchange funding for thecash investments must be inwardly remittedbut need not be converted to pesos.

Assets eligible for registration asinvestment in kind shall include: (1) machineryand equipment; (2) raw materials, supplies,spare parts and other items includingintangible assets necessary for the operationsof the investee firm. The value of theseinvestments in kind shall be assessed andappraised by the Bangko Sentral before theirregistration.

Expenses incurred by foreign firmspursuant to government-approved servicecontracts/other contracts for oil, gas, andgeothermal energy exploration/developmentsmay be capitalized and registered as foreigninvestment with the Bangko Sentral.(As amended by Circular No. 742 dated 21 November 2011)

Section 35. Inward Foreign PortfolioInvestments. Inward foreign portfolioinvestments shall include the following:

1. Investments in government securitieswhich refer to investments in peso-denominated certificates of indebtedness,issued by public sector entities.

2. Investments in listed securitieswhich refer to investments in securitieslisted in the PSE.

3. Investments in money marketinstruments which refer to all peso-denominated debt instruments, such as butnot limited to bonds, bills payables,promissory notes, and non-participatingpreferred shares, issued onshore by privateresident firms, not included in Section 23.

4. Investments in bank deposits:Provided, That only peso time deposits withan AAB with a maturity of at least ninety(90) days shall be eligible for registrationwith the Bangko Sentral.

For registration purposes, the foreign

Sections 31 - 3512.12.31

Part V- Page 13

6 Pursuant to BSP Memorandum No. 2012-034 dated 13 July 2012


exchange funding for the portfolioinvestments must be inwardly remitted andconverted to pesos.(As amended by Circular No. 742 dated 21 November 2011)

Section 36. Registration with the BangkoSentral. The following inward foreigninvestments shall be registered with theBangko Sentral:

1. Inward foreign direct investmentsunder Section 34; and

2. Investments in peso-denominatedmoney market instruments under Item 3 ofSection 35.

All applications for registration offoreign direct investments under Section 34shall be filed with the Bangko Sentral withinfive (5) years from the date of inwardremittance/actual transfer of assets to thePhilippines1. A Bangko Sentral RegistrationDocument (BSRD) shall be issued by theBangko Sentral evidencing registration of suchinvestments.(As amended by Circular No. 743 dated 15 December 2011)

Section 37. Registration with CustodianBanks. Inward foreign investments in peso-denominated government securities, PSE-listed securities, and peso time deposits underItems 1, 2 and 4, respectively, of Section 35shall be registered with an investor’sdesignated custodian bank on behalf of theBangko Sentral.

A custodian bank may be any AAB or anOBU appointed by the foreign investor toregister his investments and to hold sharesand other investment instruments for and onhis behalf and to represent him in all thenecessary actions in connection with hisinvestments in the Philippines.

The BSRD to be issued by a custodianbank on behalf of the Bangko Sentral shall bein the prescribed pre-numbered formpurchased by the custodian bank from theBangko Sentral. BSRDs issued directly by

custodian banks for registered investments inpeso time deposits shall be (a) annotated withroll-overs of the investment; or (b) cancelled ifsuch deposits are preterminated before ninety(90) days.

Section 38. Registration Procedures. Theprocedures for registration of foreigninvestments including the supportingdocuments are outlined in Appendix 10.

Section 39. Import/Export of StockCertificates of Philippine Firms. No prior BSPauthority shall be required for the import/export of stock certificates of Philippine firmsissued to foreign investors, includinginvestments prior to 15 March 1973 underSection 43.

Section 40. Repatriation and RemittancePrivileges

1. Inward foreign investments dulyregistered with the Bangko Sentral or with acustodian bank duly designated by the foreigninvestor, shall be entitled to full and immediaterepatriation of capital and remittance ofdividends, profits and earnings using foreignexchange to be purchased from AABs andAAB-forex corps.

2. Foreign exchange may be purchasedfrom AABs and AAB-forex corps for outwardremittance in an amount equivalent to thepeso sales/divestments proceeds (includingdividends, profits or earnings thereon) ofBSP-registered foreign investments inaccordance with the procedures outline inAppendix 11 and supported by thedocuments prescribed under Items C.1 andC.2 of Appendix 1 hereof.

3. Registering banks for foreigninvestments may sell for outward remittancethe equivalent foreign exchange of excesspesos funded with inward remittance offoreign exchange but not to exceed the amountof foreign exchange brought in less the amount

Sections 35 - 4011.12.31

Part V- Page 14

1Qualified foreign investments whose date of inward remittance of funds or actual transfer of assets to thePhilippines are beyond the 5-year period, are allowed to register until 14 December 2012


actually used for BSP-registered investmentsmade in the country, subject to the followingconditions:

a. the investor shall comply with theprescribed documents under Item C. 3 ofAppendix 1 hereof;

b. such excess pesos should nothave been u t i l i zed to fund anyinvestment; and

c. the remittance of the equivalentforeign exchange shall be reported to theBSP-IOD by the remitting AAB within two(2) banking days from the date of outward

Section 4011.12.31

(Next Page is Part V - Page 15)

Part V- Page 14a


remittance, with copies of the prescribedsupporting documents.

The foreign exchange purchases may bemade by the resident agent on behalf of thenon-resident investor for direct remittanceto the non-resident beneficiary on the dayof purchase.(As amended by Circular No. 698 dated 05 November 2010)

Section 41. Deposit of Divestment/SalesProceeds. Pending reinvestment orrepatriation, divestment/sales proceeds ofduly registered foreign investments,including dividends, profits, and earningsmay be deposited temporarily with anyAAB. The eventual repatriation thereofincluding interest earned net of taxes, shallbe remittable in full through any AABwithout prior BSP approval in accordancewith the procedures outlined inAppendix 11.

Section 42. Reinvestment. Foreign investorsmay reinvest divestment/sales proceeds orremittable dividends/profits or earnings ofduly registered investments. Thereinvestments shall be registered with theBSP or the investors’ designated custodianbanks, as applicable, if the foreign exchangeneeded to service the repatriation of capitaland the remittance of dividends, profits andearnings which accrue thereon shall bepurchased from AABs and AAB-forex corps.

Section 43. Inward Foreign InvestmentsPrior to 15 March 1973. Repatriation ofdivestment proceeds and remittance ofdividends, profits and earnings from foreigninvestments certified by stock transfer agentsto have been made prior to 15 March 1973may be serviced using foreign exchangepurchased from AABs and AAB-forex corps,without prior BSP approval. In the absenceof said certification, such investments maybe registered with the BSP subject tosubmission of documentary requirementsunder Appendix 12.

Section 44. Investments by PhilippineResidents

1. Outward Investments.a. Residents may undertake outward

investments only if:i. the investments are funded by

withdrawals from the resident investor’sFCDU account/s; or

ii. the funds to be invested are notamong those required to be sold to AABsfor pesos under existing BSP rules; or

iii. the funds to be invested arepurchased from AABs or AAB-forex corpsbut in amounts not exceeding USD60million or its equivalent in other foreigncurrency per investor per year, or per fundper year for qualified investors (QIs).

Application to purchase foreignexchange for outward investments(Annex A)shall be supported by documents prescribedunder Item "C.4" of Appendix 1 hereof.

b. Outward investments by residents(excluding AABs) funded with foreignexchange purchased from AABs or AAB-forex corps in excess of the USD60 millionper investor per year shall require priorapproval by the BSP: Provided, That thepurchase of foreign exchange for outwardinvestments by managed or trusteedaccounts (other than pooled funds) shall beconsidered as part of the foreign exchangepurchases by the principal or trustor of suchaccounts for determining compliance withthe limits. Outward investments of banksshall be subject to existing prudentialregulations of the BSP.

c. QIs may apply with the BSP for ahigher annual outward investment limit.For purposes of this section, QIs shallbe limited to the following: insuranceand pre-need companies; collective/pooled funds, whether in a corporate orcontractual structure, such as mutualfunds, unit investment trust funds andvariable insurance; public or privatepension or retirement or providentfunds and such other entities and funds

Sections 40 - 4411.12.31

Part V- Page 15


as the BSP may determine as QIs on thebasis o f such fac tor s as f inanc ia lsophistication, size and regularity offinancial transactions, net worth andsize of assets being managed. Theapplication of collective/pooled fundsand pension, retirement and providentfunds for a higher annual outwardinves tment l imi t may be e f fec tedthrough its governing board or throughits trustee.

2 . Inves tments in bonds /no tesissued by residents offshore. Residentsmay purchase foreign exchange fromAABs or AAB-forex corps without priorBSP approval for investments in thefo l lowing : ( a ) fo re ign cur rency -denomina ted bonds /no tes o f theRepublic of the Philippines or otherPhi l ipp ine res iden t en t i t i e s ; and(b) peso-denominated bonds/notes ofthe Republic of the Philippines or otherPhilippine resident entities requiringse t t lement in fo re ign cur rency :Provided, That such purchases shall beconsolidated with foreign exchangepurchases for outward investmentsunder Item 1.b hereof for purposed ofde te rmin ing compl iance wi th thea l lowed l imi t , and suppor ted bydocuments prescribed under Item “C.5”of Appendix 1 hereof.

3. Foreign exchange received byresidents as dividends/earnings ordivestment proceeds from outwardinvestments and investments in bonds/notes issued by residents offshore thatwere funded with foreign exchangepurchased from AABs or AAB-forexcorps, need not be inwardly remittedand sold for pesos.(As amended by Circular Nos. 742 dated 21 November2011 and 698 dated 05 November 2010)

PART THREE. OFFSHORE BANKINGUNITS, REPRESENTATIVE OFFICES

AND FOREIGN CURRENCYDEPOSIT UNITS

Chapter I

OFFSHORE BANKING UNITS OFFOREIGN BANKS

Section 45. Definition of Terms. As usedin this Chapter, the following terms shallhave the meaning indicated unless thecontext clearly indicates otherwise:

1. “Offshore Banking” shall refer to theconduct of banking transactions in foreigncurrencies involving the receipt of fundsprincipally from external sources and, asallowed in this Manual, from internalsources and utilization of such funds, asprovided herein.

2. “Offshore Banking Unit” or “OBU”shall refer to a branch a foreign bankingcorporation which is duly authorized by theBSP to transact offshore banking businessin the Philippines.

3. “Net office funds” shall refer to thenet credit balance of the “Due to Head Office(HO)/Branches/” after deducting the “Duefrom HO/Branches”, as shown in thefollowing computation:

Due to HO/Branches Remittances/Advances/Deposits to OBU by HO/Branches x x x x x x x Unremitted earnings of OBU x x x x x x x

T o t a l USD x x x x x x x

Less: Due from HO/Branches

Remittances/Advances/Deposits of OBU with its HO/Branches x x x x x x x

Net Office Funds USD x x x x x x x

Sections 44 - 4511.12.31

Part V- Page 16


4. “Deposits” shall refer to funds inforeign currencies which are accepted andheld by an OBU in the regular course ofbusiness, with the obligation to return anequivalent amount to the owner thereof, withor without interest.

5. “Resident” shall refer to –a) an individual citizen of the Philippines

residing therein1; orb) an individual who is not a citizen of

the Philippines but is permanently residing1

therein; orc) a corporation or other juridical person

organized under the laws of the Philippines;or

d) a branch,subsidiary,affiliate, extensionoffice or any other unit of corporations orjuridical persons which are organized underthe laws of any country and operating in thePhilippines, except OBUs.

6. “Non-resident” shall refer to anindividual, a corporation or other juridicalperson not included in the definition ofresident.

7. “Foreign Currency Deposit Unit” or“FCDU” shall refer to that unit of a local bankor of a local branch of a foreign bankauthorized by the BSP to engage in foreigncurrency-denominated transactions, pursuantto the provisions of Republic Act No. 6426(Foreign Currency Deposit Act) dated 4 April1974, as amended.

8. “Local bank” shall refer to a rural bank(RB)/cooperative bank (Coop Bank), thrift bank(TB), commercial bank (KB) or universal bank(UB) organized under the laws of the Republicof the Philippines.

9. “Local branch of a foreign bank” shallrefer to a branch of a foreign bank doingbusiness in the Philippines, pursuant to theprovisions of Republic Act No. 7653 andRepublic Act No. 8791 (The General BankingLaw of 2000) dated 23 May 2000.

10. “Acceptable foreign exchange”comprise those foreign currencies which are

acceptable to and exchangeable at the BSP andwhich form part of the international reservesof the country.

Section 46. Approvals Required. Aforeign bank may operate an OBU in thePhilippines, upon issuance of a Certificate ofAuthority to operate by the Monetary Boardand registration with the SEC.

Section 47. Criteria for Selection. Thefollowing factors shall serve as basis for theissuance of certificate of authority to operatean OBU: (1) liquidity and solvency positions;(2) net worth and resources; (3) managerialand international banking expertise of applicantbank; (4) contribution to the Philippineeconomy; and (5) other relevant factors, suchas participation in the equity of local UBs/KBsand appropriate geographic representations.

Section 48. Pre-Operation RequirementsUpon advice from the BSP, a qualified bankshall submit a sworn undertaking of its headoffice through any of its duly authorizedofficers, supported by an appropriateresolution of its board of directors, to the effectthat it shall:

1. provide, on demand, the necessarycurrencies to cover liquidity needs that mayarise or other shortfall that its OBU may incur;

2. manage the operations of its OBUsoundly and with prudence;

3. continually train a specific number ofFilipinos in international banking and foreignexchange trading with a view to reducing thenumber of expatriates;

4. provide and maintain in its OBU atall times net office funds in the minimumamount of USD1 million;

5. start operations of its OBU within 180days from receipt of its certificate of authorityto operate such unit;

6. comply with all applicable local lawsrelating to labor and employment; and

Sections 45 - 4709.12.31

Part V- Page 16a

1 Residents include any individual, citizen or otherwise, who has resided in the Philippines for a year or longer,as defined in Section 83 of the IMF Balance of Payments Textbook, 1996.

(Next Page is Part V - Page 17)

Manual of Regulations for Banks Part V - Page 17

7. submit, before start of operations,other documents as may be required by theBSP such as certification or similardocuments showing that it is dulyauthorized by the proper government entityof its country to engage in offshore bankingbusiness in the Philippines.

Section 49. Annual Fee. Upon issuance ofa certificate of authority to operate an OBUin the Philippines, and yearly thereafter, theauthorized bank shall pay the BSP a fee ofnot less than USD20,000.00.

Section 50. Transactions with Non-Residents and/or with Other OBUs. AnOBU may freely engage in all normalbanking transactions with non-residentsand/or with other OBUs, involving anycurrency other than the Philippine peso.

Section 51. Transactions with ForeignCurrency Deposit Units (FCDUs)/Expanded Foreign Currency Deposit Units(EFCDUs). Subject to BSP regulations, anOBU may engage in the followingtransactions with FCDUs/EFCDUs of localbanks in any currency other than thePhilippine peso:

1. Accept time, savings and demanddeposits or issue negotiable certificates oftime deposit;

2. Borrow with maturities notexceeding 360 days;

3. Deposit;4. Extend loans and advances;5. Deal in foreign currency financial

instruments;6. Discount bills, acceptances, and

negotiable certificates of deposits;7. Engage in foreign exchange trading;8. Engage in foreign currency, foreign

currency swap; and9. Engage in such other transactions as

authorized under this Section between

OBUs and resident banks authorized toaccept foreign currency deposits under theprovisions of Republic Act No. 6426, asamended.

Interbank short-term transactions of notexceeding 360 days such as credit lines ofPhilippine banks with correspondent banks,interbank call loans and interbank loans forgeneral liquidity purposes shall not requireprior BSP approval.

Section 52. Transactions with Residentswhich are not Banks. An OBU may engagein the following transactions with residentswhich are not banks:

1. Deal in foreign currency financialinstruments;

2. Extend foreign currency loans andadvances, subject to existing regulations onforeign borrowings;

3. Service importations through L/C,D/A, O/A and D/P of resident-borrowers:Provided, That such importations shall befunded by a BSP-authorized OBU foreigncurrency loan to the resident-borrowerinvolved; and Provided, further, That D/A-O/A imports coursed through and servicedby OBUs shall be subject to the reportingrequirements under Appendix 6;

4. Negotiate inward (export) L/Cs andhandle other export transactions (includingD/P, D/A and O/A) coursed through theirworldwide network of branches andcorrespondents: Provided, That OBUs sharein the total export L/C negotiation businessshall be limited to ½ of the growth(incremental) element in the country’s totalannual export. This limit shall be observedyearly until this equals ten percent (10%) oftotal exports. Exports not covered by L/Cs,i.e., done through D/A-O/A arrangementsshall be considered subject to this overalllimit;

5. Provide full foreign exchangeservice for all foreign currency non-trade

Sections 48 - 5209.12.31


and trade remittances resulting from orrelated to their own negotiation of exportL/Cs;

6. Render financial, advisory andrelated services; and

7. Refinance trust receipts withoutprior BSP approval arising from importtransactions of Philippine residents in U.S.dollars or in other acceptable foreigncurrencies. The refinancing shall beevidenced by banker’s acceptances.

However, OBUs may hold peso-denominated assets arising fromrestructuring or other repayment scheme ofoutstanding loans, subject to the terms andconditions of the approval of suchrestructuring/other repayment scheme andto the following clarifications andconditions:

a. That term ‘assets’ as used in thisSection shall refer to bonds or othercertificates of indebtedness, shares of stocksand other properties;

b. That bonds or other certificates ofindebtedness issued by a third party as wellas shares of stocks and other propertiesacquired as a result of restructuring/otherpayment scheme shall be accounted for inaccordance with Philippine AccountingStandards (PAS) 39; and

c. That shares of stock and otherproperties acquired as a result ofrestructuring/other repayment scheme shallbe sold/disposed of within a period of five(5) years from date of acquisition.

Section 53. Peso Deposits. OBUs may openand maintain peso deposit accounts withAABs exclusively for the followingpurposes:

1. To meet administrative and otheroperating expenses, such as salaries, rentalsand the like;

2. To pay the peso equivalent offoreign exchange sold by beneficiaries of

inward remittances of Filipino overseasworkers or of Filipino or multinationalcompanies, coursed through the OBUs’correspondent banks abroad;

3. To pay the designated beneficiariesin the Philippines the peso equivalent offoreign exchange inward remittances otherthan those related to (a) trade; or (b) inwardforeign investments that are intended to beserviced using foreign exchange purchasedfrom AABs or AAB-forex corps; and

4. To pay the peso equivalent offoreign exchange sold by beneficiaries ofexport L/Cs negotiated with the OBUs.

The peso deposit accounts shall befunded exclusively by inward remittancesof foreign exchange eligible to form part ofthe Philippine international reserves.

OBUs may also sell inward remittancesof foreign exchange for pesos to the BSPthrough the Treasury Department, for creditto the demand deposit account of thedesignated AABs for the account of theOBU.

Section 54. Financial Assistance toOfficers/Employees. OBUs may extendfinancial assistance (real estate, car, personalloans, etc.) in local or foreign currency totheir Filipino officers and employees as partof their fringe benefit program.

They may likewise grant foreigncurrency loans to their expatriate officerswithout need of BSP approval.

Section 55. Secrecy of Deposits. Theprovisions of Republic Act No. 6426, asamended, shall apply to deposits in OBUs;Provided, That numbered deposit accountsshall not be used.

Section 56. Exemption from Certain Laws.The provisions of Republic Act No. 2655(Usury Law) dated 01 May 1915, asamended1, and Republic Act No. 3591

Sections 52 - 5609.12.31

1 Suspended by CBP Circular No. 905-82 dated 10 December 1982, effective 01 January 1983.


(An Act Establishing the Philippine DepositInsurance Corporation) dated 22 June 1963,as amended, shall not apply to transactionsand/or deposits in OBUs in the Philippines.

Section 57. Accounting and ReportingOBUs shall maintain an accountingsystem in accordance with guidelinesprescribed by the BSP. Periodically or asrequired, existing reports shall continueto be submitted in the prescribed formsto the BSP.

Section 58. Supervision. The operations andactivities of OBUs shall be conducted underthe supervision of the BSP.

Section 59. Taxes, Customs DutiesTransactions of OBUs in the Philippinesshall be subject to such taxes as areprescribed in Presidential Decree No. 1034(Authorizing the Establishment of anOffshore Banking System in the Philippines)dated 30 September 1976, as implementedby regulations of the BIR.

Section 60. Revocation/Suspension. TheMonetary Board, upon recommendation ofthe Governor, may revoke or suspend theauthority of an OBU to operate in thePhilippines for violation of PresidentialDecree No. 1034 or relevant provisions ofthis Manual.

Chapter II

REPRESENTATIVE OFFICES OFFOREIGN BANKS


1. “Foreign Bank” shall refer to a bankor banking corporation formed, organizedand existing under any foreign law.

2. “Representative Office” shall referto a liaison office of a foreign bank whichdeals directly with the public by promotingand giving information about the servicesoffered by the foreign bank. It does notinclude the regional or area headquartersof a foreign bank registered and licensedunder existing laws.

Section 62. Criteria for Approval. TheMonetary Board may authorize qualifiedforeign banks to open representative officesin the Philippines if, in its judgment, thepublic interest and economic conditions,both general and local, justify theestablishment of such office. The followingfactors, among others, shall serve as basisfor issuance of authority to open arepresentative office in the Philippines:(1) liquidity and solvency positions; (2) networth and resources; (3) financial and creditstanding in the international bankingcommunity; (4) exposure in the Philippines;and (5) other relevant factors, such asPhilippine commercial and financialrelationships with the country whereapplicant bank is based.

Section 63. Authorized Activities ofRepresentative Offices. Authorizedrepresentative offices may promote andprovide information about the services/products offered by the foreign banks butmay not transact banking business, such asacceptance of deposits, issuance of lettersof credit and foreign exchange trading.Transactions generated through thepromotional efforts of the representativeoffice may be booked only by the foreignbank abroad.

Section 64. Fees. Foreign banks intendingto establish a representative office shall,upon issuance by the BSP of a Certificate ofAuthority, pay the BSP a license fee ofUSD2,000.00.

Sections 56 - 6409.12.31


Section 65. Use of the term“Representative Office”. Foreign banksauthorized to operate representative officesshall, in their representation with the public,carry with their name the additional term“Representative Office” to properly guide thepublic on the nature and extent of theiractivities.

Section 66. Licensing. The licensing andoperations of representative offices includingthe implementation of these regulations andsuch other rules and regulations that maybe issued from time to time shall be theresponsibility of the BSP-Supervision andExamination Sector (SES).

Section 67. Visitorial Power. The BSP may,from time to time, look into the affairs ofthe representative offices to determine theextent of their compliance with theseregulations and/or other related BSPissuances.

Section 68. Reporting. Representativeoffices shall submit to the BSP annual reportsof their Head Office and, periodically as maybe required, reports on the transactions oftheir Head Office in the Philippines in suchform as may be prescribed for the purpose.

Section 69. Revocation of License. TheMonetary Board may revoke the license ofa representative office if it finds after dueinvestigation that: (1) the representativeoffice or its officers have violated theprovisions of this Manual and any otherapplicable rules and regulations of the BSP;or (2) its Head Office is found to be inimminent danger of insolvency or that itscontinuance in business will involveprobable loss to those transacting businesswith it, pursuant to Section 37 of RepublicAct No. 7653, and Section 78 of RepublicAct No. 8791.

Chapter III

FOREIGN CURRENCY DEPOSITSYSTEM


1. “Foreign Currency Deposit Unit”(FCDU) and “Expanded Foreign CurrencyDeposit Unit” (EFCDU) shall refer to aunit of a local bank or of a local branchof a foreign bank authorized by the BSPto engage in foreign currency-denominated transactions, pursuant to theprovisions of Republic Act No. 6426, asamended.

2. “Local bank” shall refer to an RB/Coop Bank, TB, KB or UB organized underthe laws of the Republic of the Philippines.

3. “Local branch of a foreign bank”shall refer to a branch of a foreign bank doingbusiness in the Philippines, pursuant to theprovisions of Republic Act No. 7721 (AnAct Liberalizing the Entry and Scope ofOperations of Foreign Banks in thePhilippines and for Other Purposes) dated18 May 1994, Republic Act No. 7653, andRepublic Act No. 8791.

4. “Short-term” loans and securitiesshall refer to those with maturities of one(1) year or less.

5. “Medium-term” loans and securitiesshall refer to those with maturities of morethan one (1) year but not more than five (5)years.

6. “Long-term” loans and securitiesshall refer to those with maturities of morethan five (5) years.

The definition of such other terms usedin this Chapter shall be consistent with thedefinition of terms used under the Chapterson OBUs and Representative Offices ofForeign Banks.

Sections 65 - 7009.12.31


Section 71. Qualification RequirementsUBs/KBs may be authorized to operate anFCDU or EFCDU: Provided, That they meet theminimum capital requirements as prescribedunder Section X106 and Subsections X106.1and X106.2 of the Manual of Regulationsfor Banks (MORB) for local banks andSubsections X121.4 and X121.5 of theMORB for branches of foreign banks.

In addition, the following standard pre-qualification requirements as prescribedunder Appendix 5 of the MORB shall becomplied with:

a. The bank has complied, during theperiod indicated immediately preceding thedate of application, with the following:

1) Risk-based capital adequacy ratiofor the last 60 days;

2) Ceilings on credit accommodationto directors, officers, stockholders andrelated interests (DOSRI); and

3) Liquidity floor on governmentdeposits.

b. The bank has not incurred netweekly reserve deficiencies for the last eight(8) weeks;

c. The bank has generally compliedwith banking laws, rules and regulations,orders or instructions of the Monetary Boardand/or BSP Management;

d. The bank’s past due loans do notexceed twenty percent (20%) of its total loanportfolio as of the date of application;

e. The bank has corrected as of dateof application the major violations notedin its latest examination particularlyrelating to -

1) single borrower’s limit; and2) total investment in real estate and

improvements thereon, including bankequipment, which shall not exceed fiftypercent (50%) of net worth;

f. The bank’s accounting records,systems, procedures and internal controlsystems are satisfactorily maintained;

g. The bank does not have float itemsoutstanding for more than 60 calendar daysin the “Due From/To Head Office/Branches/Offices” accounts and the “Due from BangkoSentral” account exceeding one percent (1%)of the total resources as of end of precedingmonth;

h. The bank has no past due obligationwith the BSP or with any financial institutionas of date of application;

i. The bank’s facilities pertinent to theauthority applied for are adequate;

j. The officers who will be in-chargeof the operation relating to the authorityapplied for have actual experience of at leasttwo (2) years in another bank as in-charge(or at least as assistant-in-charge) of the sameoperation;

k. The bank personnel who will handlethe operation relating to the authorityapplied for, have attended appropriateseminars, workshops or on-the-job trainingor have experience of at least six (6) months;and

l. The bank has complied with themandatory allocation of credit resources tomicro, small and medium enterprises fortwo (2) quarters immediately preceding thedate of application.

2. TBs with net worth or combinedcapital accounts of at least PHP325 millionfor those with head offices located withinMetro Manila and PHP52 million for thosewith head offices located outside MetroManila may, subject to prior MonetaryBoard approval, operate an FCDU. A TBdesiring to operate an FCDU shall file anapplication with the BSP-SES. Theapplication shall be signed by the bankpresident or officer of equivalent rank andshall be accompanied by the followingdocuments:

a. Certified true copy of the resolutionof the bank’s board of directors authorizingthe application; and

Sections 7109.12.31


b. A certification signed by thepresident or the officer of equivalent rankthat the bank has complied with allconditions/prerequisites for the grant ofauthority to operate an FCDU.

A TB applying for authority to operateFCDU must comply with the followingrequirements:

a. The bank’s operation during thepreceding calendar year and for the periodimmediately preceding the date ofapplication has been profitable;

b. The bank is well capitalized withrisk-based capital adequacy ratio not lowerthan twelve percent (12%) at the time offiling the application;

c. The officer who will be in charge ofFCDU operations shall either have at leastone (1) year of actual experience in anotherbank as in-charge or assistant in-charge ofthe same operations, or have attended aspecialized training course on FCDUtransactions or operations conducted by theBSP or an institution duly accredited by theBSP;

d. The bank has not incurred netweekly reserve deficiencies within eight (8)weeks immediately preceding the date ofapplication;

e. The bank has generally compliedwith banking laws, rules and regulations,orders or instructions of the Monetary Boardand/or the BSP Management in the last two(2) preceding examinations prior to the dateof application, more particularly on:

(1) election of at least two (2)independent directors;

(2) attendance by every member of theboard of directors in a special seminar forboard of directors conducted or accreditedby the BSP;

(3) the ceilings on creditaccommodations to DOSRI;

(4) liquidity floor requirements forgovernment deposits;

(5) single borrower’s loan limit; and

(6) investment in bank premises andother fixed assets.

f. The bank maintains adequateprovisions for probable lossescommensurate to the quality of its assetportfolio but not lower than the requiredvaluation reserves as determined by the BSP;

g. The bank has no float itemsoutstanding for more than 60 calendar daysin the “Due From/To Head Office/Branches/Offices” accounts and the “Due FromBangko Sentral” account exceeding onepercent (1%) of the total resources as of dateof application;

h. The bank has no past dueobligations with the BSP or with anygovernment financial institution;

i. The bank has established a riskmanagement system appropriate to itsoperations characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risk limits,effective internal controls and complete,timely and efficient risk reporting system;

j. The bank has a CAMELS CompositeRating of at least “3” in the last regularexamination with Management rating of notlower than “3”; and

k. The bank is a member of thePhilippine Deposit Insurance Corporation(PDIC) in good standing.

3. An RB/Coop Bank desiring tooperate an FCDU shall file an applicationwith the BSP-SES. The application shall besigned by the bank president or officer ofequivalent rank and shall be accompaniedby the following documents:

a. Certified true copy of the resolutionof the bank’s board of directors authorizingthe application; and

b. Certification signed by the presidentor the officer of equivalent rank that the bankhas complied with all the conditions/prerequisites for the grant of authority tooperate an FCDU.

Section 7109.12.31


An RB/Coop Bank applying forauthority to operate an FCDU must complywith the following requirements: a. Minimum capital under SubsectionX151.2 of the MORB or PHP20 million,whichever is higher;

b. Risk-based capital adequacy ratio atthe time of filing the application of at leasttwelve percent (12%);

c. CAMELS composite rating in thelatest examination of at least “3”, withManagement component score not lowerthan “3”; and

d. No outstanding major supervisoryconcerns on safety and soundness from lastexamination, such as, but not limited to:

1) Unbooked valuation reserves2) Inadequate regular and liquidity 12 weeks

reserves on deposits including government deposits and deposit substitutes

3) DOSRI loans in excess of ceilings 3 months4) Poor asset quality5) Violation of single borrower’s loan limit and investment limits.6) Past due obligation with the BSP or with any financial institution7) Unsafe and unsound banking 6 months practices8) Inadequate accounting records, systems, procedures and internal controls9) Corporate governance10)Compliance with banking laws, rules and regulations,

orders or instructions of theMonetary Board and/or BSPManagement

11)Membership with the PDIC

In addition to requirements underexisting regulations, an RB/Coop Bankauthorized to operate an FCDU shall:

a. have the capacity to operate anFCDU. An RB/Coop Bank may, however,upgrade its capacity by appointing as Officerwho will be in-charge of the FCDUoperations an individual (a) with actualexperience in another bank as in-charge or

assistant in-charge of the same operationsfor at least one (1) year, or (b) who hasattended a specialized training course onFCDU transactions or operations conductedby the Bangko Sentral ng Pilipinas Instituteor an institution or bank duly accredited bythe BSP; and

b. establish a risk management systemappropriate to its operations, characterizedby clear delineation of responsibility for riskmanagement, adequate risk measurementsystem, appropriately structured risk limits,effective internal control system andcomplete, timely and efficient risk reportingsystem.

Section 72. Authorized Transactions1. TBs and RBs/Coop Banks which are

granted a certificate of authority to operatean FCDU are authorized to engage in thefollowing transactions in any acceptableforeign currency:

a. Accept deposits and trust accounts(for banks authorized to engage in trustoperations) from residents and non-residents;

b. Deposit, regardless of maturity,with foreign banks abroad, OBUs and otherFCDUs/EFCDUs;

c. Invest in readily marketable foreigncurrency denominated debt instruments. Forthis purpose, ‘readily marketable’ debtinstruments shall refer to debt instrumentsthat are quoted in an active market and thequoted prices are readily and regularlyavailable from an exchange, dealer,broker, industry group, pricing service orregulatory agency, and those pricesrepresent actual and regularly occurringmarket transactions on an arm’s lengthbasis;

d. Grant short-term foreign currencyloans as may be allowed by BSPregulations: Provided, That FCDUs ofRBs/Coop Banks shall not grant loans to

Sections 71 - 7209.12.31

Part V- Page 23


producers/manufacturers, including oilcompanies and public utility concerns;

e. Borrow, subject to existing rules onforeign/foreign currency borrowings, (i) fromEFCDUs, foreign banks abroad and OBUs,regardless of maturity; and (ii) from otherFCDUs, on short-term maturity;

f. Engage in foreign currency-foreigncurrency swaps with the BSP, OBUs andother FCDUs/EFCDUs;

g. Engage in securities lendingactivities as lender subject to the followingconditions:

(1) The securities to be lent shall belimited to securities lodged under the accountHeld for Trading (HFT) Financial Assets andAvailable for Sale (AFS) Financial Assets.

The use of Held to Maturity (HTM)Financial Assets holdings shall also beallowed in securities lending subject to thefollowing conditions:

(a) The lending bank had the positiveintention and ability to maintain or recovercontrol of the same or substantially similarsecurities as those lent;

(b) The counterparty’s failure toredeliver the securities lent at maturity or atthe date agreed upon could not have beenreasonably anticipated by the lender at thetime of the transaction; and

(c) In case of failure or default of thecounterparty to redeliver the securities lent,the same shall be immediately replaced byidentical or substantially similar securities.For this purpose, a replacement security mayonly be considered substantially similar tothe securities lent or sold if all of thefollowing circumstances are present:

i. The security must have the sameprimary obligor and must have the sameguarantor under the same terms andconditions, if guaranteed;

ii. The security must be identical inform and type so as to give the same risksand rights to the holder; and

iii. The debt instrument must have thesame maturity and interest rate.

(2) The lending activity shall have priorapproval of the bank’s board of directorsand shall be governed by adequate writtenpolicies and procedures duly approved bythe said board;

(3) The securities lending shall be donethrough reputable internationallyrecognized and experienced third-partylending agent/intermediary which must bea regulated entity in its country of operation;

(4) The securities lending transactionshall be subject to a written legal agreementbetween the lending bank and the lendingagent which must clearly specify the:

(a) relationship as well as therespective duties and responsibilities of eachcounterparty;

(b) obligation of the borrower toredeliver a like quantity of the same issueor series as the loaned securities;

(c) guidelines for selecting investmentsfor cash collateral, which shall include aprovision that cash collateral will not bereinvested in liabilities of the lender, itssubsidiaries or affiliates; and

(d) lending fee or compensation;(5) The loaned securities must be fully

secured by debt securities of countries orentities with highest credit quality, cash incurrencies acceptable as part ofinternational reserves, letters of credit andcertificates of deposits issued by banks withhighest credit quality. For this purpose, aforeign country and a bank with highestcredit quality refer to a foreign country anda bank given the highest credit rating by anytwo (2) of the following internationallyaccepted rating agencies:

Rating Agencies Highest Rating

Moody’s “Aa3” Standard and Poor’s “AA” Fitch IBCA “AA”

Others as may be approved by the Monetary Board

Section 7209.12.31

Part V - Page 24


Collateral value shall initially be at least102% of the current market value of theloaned securities and maintained at 100%of the value of the loaned securities plusaccrued interest thereon during the courseof the loan;

(6) The lender shall do daily mark-to-market on the loaned securities and on thesecurities where cash collateral is invested/reinvested;

(7) The lender shall require from thelending agent/intermediary timely andcomprehensive reports on the lendingactivity;

(8) For proper identification andmonitoring, the outstanding book balanceon the loaned securities shall be reclassifiedto the sub-account Government Securities(GS)/Debt Securities (DS) Lent underSecurities Lending and BorrowingTransactions under the HFT/AFS/HTMFinancial Asset accounts;

(9) The bank has in place a riskmanagement system commensurate to thenature, volume and complexity of itsoperations and characterized by cleardelineation of responsibility for riskmanagement, adequate risk measurementsystems, appropriately structured risklimits, effective internal controls andcomplete, t imely and efficient riskreporting system: Provided, That thisrequirement shall be automaticallyconsidered complied with by banks withderivatives license;

(10)The bank’s CAMELS compositerating in the last BSP regular examination isat least “3”, with a minimum score of “3”on management; and

(11)The foreign currency denominateddebt securities lent or used as collateralby the borrowing bank in securitieslending and borrowing transactions shallbe considered as eligible asset cover forthe 100% cover requirement. However,

these shall not be eligible for the thirtypercent (30%) liquid asset cover.

h. Engage in repurchase agreementsinvolving foreign currency denominatedgovernment securities subject to thefollowing conditions:

(1) Such repurchase agreements shallbe limited to:

a. HFT and AFS securities held underthe FCDU/EFCDU books;

b. HTM securities holdings, subject tothe following conditions:

i. The selling bank had the positiveintention and ability to maintain or recovercontrol of the same or substantially similarsecurities as those sold;

ii. The counterparty’s failure toredeliver the securities sold at maturity orat the date agreed upon could not have beenreasonably anticipated by the seller at thetime of the transaction;

iii. In case of failure or default of thecounterparty to redeliver the securitiessold, the same shall be immediatelyreplaced by identical or substantiallysimilar securities. For this purpose, areplacement security may only beconsidered substantially similar to thesecurities sold if all of the followingcircumstances are present:

a. The security must have the sameprimary obligor and must have the sameguarantor under the same terms andconditions, if guaranteed;

b. The security must be identical inform and type so as to give the same risksand rights to the holder; and

c. The debt instrument must have thesame maturity and interest rate.

(2) For proper identification andmoni tor ing, the outs tanding bookbalance of the government securitiessold under repurchase agreements areto be reclassified to the sub-account GSSold under Repurchase Agreement

Section 7209.12.31


under the HFT/AFS/HTM Financial Assetaccounts;

(3) The borrowings shall only be fromFCDUs/EFCDUs, non-resident financialinstitutions and OBUs;

(4) The maximum term of therepurchase agreements shall be one (1) year;

(5) The borrowings shall be bookedunder “Bills Payable” and included in thecomputation of the total FCDU/EFCDUliabilities subject to the mandatory 100percent asset cover and thirty percent (30%)liquidity cover;

(6) The foreign currency-denominateddebt securities sold or used as additionalcollateral in repurchase agreement shall beconsidered as eligible asset cover for the100% cover requirement. However, theseshall not be eligible for the thirty percent(30%) liquid asset cover;

(7) Banks shall, at all times, complywith the 100% FCDU/EFCDU asset coverand thirty percent (30%) liquid asset cover;and

(8) Banks shall monitor and assess therisks inherent in these repurchasetransactions.

The provisions/requirements underItem g which are not inconsistent with theforegoing shall be strictly observed by thebank concerned.

i. Purchase foreign currencydenominated government securities underresale agreements from other banks’ FCDU/EFCDU, non-resident financial institutionsand OBUs, subject to the followingconditions:

(1) That the government securitiespurchased shall be limited to those issuedby central governments and/or central banksof foreign countries with the highest creditquality given by any two internationallyaccepted rating agencies (i.e., currently theequivalent of Standard and Poor’s AA- orMoody’s Aa3 or better);

(2) That the maximum term of the resaleagreements shall be one (1) year; and

(3) That such government securitiespurchased under resale agreements shall beclassified as Loans and Receivables Arisingfrom Repurchase Agreements/Certificates ofAssignment/Participation with Recourse andSecurities Lending and BorrowingTransactions.

j. Issue Hybrid Tier 1 (HT1) capitalinstruments subject to the requirementsunder existing regulations;

k. Engage in USD-denominatedrepurchase agreements (R/P) with the BSPas provided under Subsection X601.1 of theMORB, subject to the guidelines underAppendix 13.

Sanctions. Without prejudice to thecriminal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of Republic Act No. 7653,violation of any provision of Items “1.g.1“and “1.h.1.b” of this Section pertaining toHTM financial assets, shall be considereda violation of the “tainting” provision underSubsection X388.5(b) of the MORB inrelation to Section 3.a of Appendix 33 ofthe MORB. In such a case, the entire HTMportfolio shall be reclassified to the AFScategory and the financial institution shallbe prohibited from using the HTM accountduring the year the violation was committedand for the succeeding two (2) full financialyears. Failure to reclassify the HTM portfolioto AFS shall subject the bank and concernedofficers to the penalties and sanctionsprovided under Subsection X388.5(c) of theMORB.

Moreover, the Monetary Board may atits discretion, impose any or all of thefollowing sanctions to a bank and/or itsdirector/s or officer/s found to be responsiblefor violation of Item “k” of this Subsection:

a. Termination of eligibility andpre-termination of any outstanding balance

Section 7209.12.31


through repayment and/or sale of thecollateral;

b. Fine of up to PHP30,000 pertransaction per day of violation reckonedfrom the time the violation was committedup to the date it is corrected;

c. Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

d. Suspension of access to the BSPrediscounting facilities;

e. Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

f. Revocation of authority to performtrust operations;

g. Revocation of quasi-bankinglicense;

h. Suspension for 120 days withoutpay of the officers and/or directorsresponsible for the violation; and

i. Other sanctions as may be providedby law.

2. UBs/KBs, which are authorized tooperate under the expanded foreigncurrency deposit system may engage in thefollowing transactions in any acceptableforeign currency:

a. Accept deposits and trust accounts(for banks authorized to engage in trustoperations) from residents and non-residents;

b. Deposit with foreign banks abroad,OBUs and other FCDUs/EFCDUs;

c. Invest in foreign currency-denominated debt instruments;

d. Grant foreign currency loans as maybe allowed by the BSP;

e. Borrow from other FCDUs/EFCDUsand from non-residents and OBUs, subjectto existing rules on foreign borrowings;

f. Engage in foreign currency-foreigncurrency swap;

g. Engage in foreign exchange trading,and with prior BSP approval, engage infinancial futures and options trading;

h. On request/instructions of its foreigncorrespondent bank, it may:

(1) issue letters of credit for a non-resident importer in favor of a non-residentexporter;

(2) pay, accept, or negotiate drafts/billsof exchange drawn under the letter of credit;and

(3) make payment to the order of thenon-resident exporter.

Provided, That the foreign correspondentbank shall deposit sufficient foreignexchange with the EFCDU issuing the letterof credit to cover all drawings.

i. Engage in direct purchase of exportbills of resident exporters subject to thefollowing conditions:

(1) Export transactions covered byusance or sight letters of credit, shall beallowed to be purchased by EFCDUs; and

(2) Export bills negotiated/purchased bythe bank’s Regular Banking Unit (RBU) andoutstanding in its books shall not be allowedto be purchased by its EFCDUs.

j. Engage in securities lendingactivities as lender subject to the conditionsas enumerated in Item "1.g" of this Section;

k. Engage in repurchase agreementsinvolving foreign currency denominatedgovernment securities subject to theconditions as enumerated in Item "1.h" ofthis Section, except Item "1.h(4)";

l. Inves t in fo re ign cur rencydenominated structured products issuedby banks and special purpose vehicles(SPVs) of high credit quality subject tothe provisions in Section 1636 of theMORB;

m. Purchase foreign currencydenominated government securities underresale agreements from other banks’ FCDU/EFCDU, non-resident financial institutionsand OBUs, subject to the followingconditions:

(1) That the government securitiespurchased shall be limited to those issued

Section 7209.12.31


by central governments and/or central banksof foreign countries with the highest creditquality given by any two internationallyaccepted rating agencies (i.e., currently theequivalent of Standard and Poor’s AA- orMoody’s Aa3 or better); and

(2) That such government securitiespurchased under resale agreements shall beclassified as Loans and Receivables Arisingfrom Repurchase Agreements, Certificatesof Assignment/Participation with Recourse,and Securities Lending and BorrowingTransactions.

n. Issue Hybrid Tier 1 (HT1) capitalinstruments subject to the requirementsunder existing regulations;

o. Engage in USD-denominatedrepurchase agreements (R/P) with the BSPas provided under Subsection X601.1 of theMORB, subject to the guidelines underAppendix 13.

Sanctions. Without prejudice to thecriminal and administrative sanctionsprovided for under Sections 36 and 37,respectively, of Republic Act No. 7653,violation of any provision of Items “2.j”, and“2.k” of this Section pertaining to HTMfinancial assets, shall be considered aviolation of the “tainting” provision underSubsec. X388.5(b) of the MORB in relationto Section 3.a of Appendix 33 of the MORB.In such a case, the entire HTM portfolioshall be reclassified to the AFS category andthe financial institution shall be prohibitedfrom using the HTM account during the yearthe violation was committed and for thesucceeding two (2) full financial years.Failure to reclassify the HTM portfolio toAFS shall subject the bank and concernedofficers to the penalties and sanctionsprovided under Subsec. X388.5(c) of theMORB.

Moreover, the Monetary Board may atits discretion, impose any or all of thefollowing sanctions to a bank and/or its

director/s or officer/s found to be responsiblefor violation of Item “o” of this Subsection:

a. Termination of eligibility andpre-termination of any outstanding balancethrough repayment and/or sale of thecollateral;

b. Fine of up to PHP30,000 pertransaction per day of violation reckonedfrom the time the violation was committedup to the date it is corrected;

c. Suspension of interbank clearingprivileges/immediate exclusion fromclearing;

d. Suspension of access to the BSPrediscounting facilities;

e. Suspension of lending or foreignexchange operations or authority to acceptnew deposits or make new investments;

f. Revocation of authority to performtrust operations;

g. Revocation of quasi-bankinglicense;

h. Suspension for 120 days withoutpay of the officers and/or directorsresponsible for the violation; and

i. Other sanctions as may be providedby law.

3. Excess FCDU/EFCDU funds ofUBs/KBs may be lent to the regular bankingunit (RBU) to fund the latter’s on-balancesheet foreign exchange trade transactions,subject to the following conditions:

a. FCDU/EFCDU may lend funds tothe RBU only after it has fully complied withthe prescribed 100% asset cover/thirtypercent (30%) liquid asset cover on FCDU/EFCDU liabilities;

b. FCDU/EFCDU lending to the RBUshall be -

(1) Capped at the lower of totaloutstanding balance on the RBU’s on-balance sheet foreign currency trade assets1

or thirty percent (30%) of the level of FCDU/EFCDU deposit liabilities, computed at theaverage daily balance (using 2-month rolling

1 i.e., Customers' Liability on Import Bills-Foreign, Customers' Liability under Trust Receipts-Foreign, Customers' Liablity forthis Bank's Acceptances Outstanding-Foreign, Export Bills Purchased and Foreign Bills Purchased-Documentary, excludingpast due accounts and Items in Litigation.

Section 7209.12.30


data) as of end of the second week prior tothe reference week. Total outstandingbalance of FCDU/EFCDU lending to theRBU shall, at all times, be within theprescribed cap. Any breach thereon shallbe subject to the imposition of a monetarypenalty of PHP30,000 per calendar day,commencing on the day the cap wasbreached until the same is corrected;

(2) Charged interest at prevailingmarket rates, computed monthly at theaverage daily balance of the receivable fromthe RBU; and

(3) On short-term maturity, or for aperiod of one (1) year or less. Balances shallbe settled, within a year from availment, byway of actual transfer of foreign currencyassets from the RBU books to the FCDU/EFCDU books.

c. The lending transaction shall bebooked as “Loans to RBU by FCDU/EFCDU” in the FCDU/EFCDU books and“Loans by RBU from FCDU/EFCDU” in theRBU books;

d. The “Loans to RBU by FCDU/EFCDU” account balance (net oftransactions outstanding for more than one(1) year) shall qualify as eligible asset cover,but not as liquid asset cover, for FCDU/EFCDU liabilities;

e. Banks shall establish and maintainsystems to–

(1) monitor the foreign currency fundsflow of RBU and the average daily balancesof foreign currency trade assets, withminimum database covering a two (2)-month rolling period; and

(2) account for the utilization of fundsborrowed from FCDU/EFCDU.

The systems as well as periodicreports generated therefrom shall be madeavailable to the BSP examiners forverification.

f. Banks shall submit to theappropriate BSP supervising department,within five (5) banking days from end of

reference month, a certification under oath(Appendix 14), signed by the Bank’sPresident or Country Manager, in case oflocal branch/subsidiary of foreign banks,Compliance Officer and Head of Treasury,to the effect that, at any day of thereference month, the outstanding balanceon funds borrowed from FCDU/EFCDUdid not exceed the prescribed cap (i.e.,lower of total outstanding balance onRBU’s on-balance sheet foreign currencytrade assets or thirty percent (30%) of thelevel of FCDU/EFCDU deposit liabilities)and were utilized by the RBU solely forforeign currency trade transactions.

The foregoing rule shall be subject toquarterly review by the BSP.

Section 73. Foreign Currency CoverRequirements. Depository banks under theforeign currency deposit and expandedforeign currency deposit systems shallmaintain at all times a 100% cover for theirforeign currency liabilities, except forUSD-denominated repurchase agreements(R/P) with the BSP. Provided , Thatviolation of the terms and conditions ofthe USD- denominated R/P facility shallsubject the borrowings of the bank to theFCDU/EFCDU asset and liquid asset coverrequirements. For purposes of complyingwith this requirement, the principal officesin the Philippines of the authorized banksand all their branches located therein shallbe considered as a single unit. The foreigncurrency cover shall consist of the netcarrying amount of the following:

1. For banks authorized to operate anFCDU:

a. Foreign currency cash on hand;b. Foreign currency checks and other

cash items;c. Due from BSP – Foreign Currency;d. Due from other banks (other

FCDUs/EFCDUs, OBUs, and non-residentbanks);

Sections 72 - 7309.12.31


e. Derivatives with Positive Fair ValueHeld for Trading and/or Hedging(Derivatives with Negative Fair Value Heldfor Trading and/or Hedging shall requirecorresponding asset/liquid asset cover);

f. Investments in readily marketableforeign currency-denominated debtinstruments, booked under the followingcontrol accounts: (i) Held for Trading (HFT);(ii) Designated at Fair Value through Profitor Loss (DFVPL); (iii) Available for Sale(AFS); and (iv) Held to Maturity (HTM).

Foreign currency-denominated debtsecurities sold/lent in repurchase agreement/securities lending and borrowingtransactions shall be considered as eligibleasset cover for the 100% asset coverrequirement. The same treatment shalllikewise apply to foreign currencydenominated debt securities used asadditional collateral in repurchaseagreements or as collateral by borrowingbank in securities lending and borrowingtransactions.

g. Foreign currency loans andreceivables maturing within one (1) yearauthorized by the BSP, booked under thefollowing:

i. Loans to BSPii. Interbank loans receivableiii. Loans and receivables – othersLoans and receivables authorized by the

BSP shall refer to those granted pursuant tothis Manual and shall include the following:(a) those with specific approval by the BSPunder Section 23 (Loans Requiring Prior BSPApproval); (b) those short term loans toresident private and public sector borrowerswhich under existing regulations require noprior BSP approval but allowed to beserviced using foreign exchange purchasedfrom AABs or AAB-forex corps (i.e., loansto commodity and service exporters,indirect exporters, producers/manufacturers,including oil companies and public utilityconcerns) under Section 24.4 (Loans NotRequiring Prior BSP Approval); and (c) those

loans to resident private sector borrowersto be serviced using foreign exchangepurchased from entities that are not AABsor AAB-forex corps under Section 24.1.a:Provided, That all applicable banking rulesand regulations are complied with includingsingle borrower’s limit as provided inSection X303 of the MORB;

h. Loans and receivables arising fromrepurchase agreements, certificates ofassignment/participation with recourse, andsecurities lending and borrowingtransactions, maturing within one (1) year;

i. Foreign currency accrued interestincome from financial assets;

j. Accounts receivable arising fromsale of financial assets under the trade dateaccounting pending actual settlement/delivery of the underlying securities(Accounts payable arising from the purchaseof financial assets under the trade dateaccounting pending actual settlement/receipt of the underlying securities shallrequire corresponding asset/liquid assetcover);

k. Loans to RBU (net of transactionsoutstanding for more than one (1) year):Provided, That the conditions under Item 3of Section 72 are complied with;

l. Receivable from the RBU bookarising from the exercise of warrants pairedwith ROP Global Bond Holdings in theFCDU/EFCDU book: Provided, That it shallbe settled by the RBU book to the FCDU/EFCDU book within six (6) months from thedate of receipt of the Exchange Securities;and

m. Such other assets as may bedetermined by the Monetary Board aseligible asset cover.

2. For banks authorized to operate anEFCDU – The foregoing accounts,regardless of maturity, and in the case ofinvestment in foreign currency denominateddebt instruments (including debtinstruments booked under Unquoted DebtSecurities Classified as Loans and

Section 7309.12.31


investments in structured products),regardless of maturity and marketability,shall all be considered as eligible assetcover. Loans to resident private and publicsector borrowers which under Section 24.4require no prior BSP approval and allowedto be serviced using foreign exchangepurchased from AABs or AAB-forex corps(i.e., loans to commodity and serviceexporters, indirect exporters, producers/manufacturers, including oil companies andpublic utility concerns) shall however haveshort term maturity.

In addition, the following shall also beconsidered as eligible asset cover:

a. Loans and Receivables granted byEFCDU pursuant to Section 24, i.e., thoseloans of non-residents from EFCDUs, to beserviced using foreign exchange purchasedfrom entities that are not AABs or AAB-forexcorps under Section 24.1.b: Provided, Thatall applicable banking rules and regulationsare complied with including singleborrower’s limit as provided in Section X303of the MORB;

b. Outstanding Export Bills Purchasedin the EFCDU books, booked under thefollowing control accounts:

i. Interbank loans receivable - ifwithout recourse

ii. Loans and receivables – others - ifwith recourse

For this purpose, net carrying amountshall refer to the gross amount of financialasset, plus or minus, as the case may be,the following: (i) unamortized premium/(discount) determined using the effectiveinterest method; (ii) any accumulated marketgains/(losses) in the case of AFS financialassets; and (iii) any allowance for creditlosses determined based on existingregulations.

3. Further, at least thirty percent (30%)of the cover requirement for foreigncurrency liabilities in the FCDU/EFCDUshall be in the form of liquid assets asfollows:

a. Foreign currency cash on hand;b. Foreign currency checks and other

cash items;c. Due from BSP – Foreign Currency

with remaining maturity of one (1) year orless regardless of funding: Provided, Thatsuch deposit/placement is not encumberedor is not being utilized for any otherpurposes;

d. Due from other banks (otherFCDUs/EFCDUs, OBUs and non-residentbanks);

e. Investments in readily marketableforeign currency denominated debtinstruments, booked under the followingcontrol accounts: (i) HFT; (ii) DFVPL;(iii) AFS; and (iv) HTM; except for thefollowing: (a) those which are sold/lent inrepurchase agreement/securities lending andborrowing transactions and those used asadditional collateral in repurchaseagreements or as collateral by borrowingbank in securities lending and borrowingtransactions; and (b) those investments instructured products;

f. Loans and receivables authorized bythe BSP booked under the following:

i. Loans to BSP maturing within one(1) year;

ii. Interbank loans receivable maturingwithin one (1) year;

iii. Loans and receivables – others thatis any of the following:

(1) Outstanding export bills purchasedin the EFCDU books.

(2) Short-term EFCDU loans toexporters in the form of export packingcredits, whether rediscounted or not underBSP’s Export Dollar Facility, up to the extentguaranteed by Trade and InvestmentDevelopment Corporation of the Philippines(TIDCORP) or Small Business Guaranteeand Finance Corporation (SBGFC): Provided,That these credits are not overdue.

g. Loans and receivables arising fromrepurchase agreements, certificates ofassignment/participation with recourse and

Section 7309.12.31


securities lending and borrowingtransactions, maturing within one (1) year;and

h. Accounts receivable arising fromsale of financial assets under the trade dateaccounting pending actual settlement/delivery of the underlying securitiespertaining to readily marketable foreigncurrency denominated debt instruments.

The 100% asset cover and thirty percent(30%) to be held in the form of liquid assetsenumerated above, shall be unencumbered,except as otherwise provided in secondparagraph of Item f of Section 73.1.

The amended report (Appendix 15) oncompliance with FCDU/EFCDU coverrequirements shall form part of the FinancialReporting Package (FRP) issued underSubsec. X162.16 of the MORB. The bankshall continue to submit to the BSP-Supervisory Data Center (SDC) acertification (Appendix 15.1) under oath andsigned by the bank’s President or CountryManager, in the case of local branch offoreign banks, Compliance Officer andHead of Treasury, to the effect that the bankhas fully complied with the FCDU/EFCDUcover requirements on all banking days ofthe reference quarter.

Sanctions: Non-compliance with theprescribed 100% FCDU/EFCDU assetcover and/or thirty percent (30%) liquidasset cover requirements shall be subject tothe imposition of a monetary penalty of one-tenth of one percent (1/10 of 1%) of thedeficiency, converted to its peso equivalentat the exchange rate prevailing on the datethe deficiency was incurred but not toexceed PHP30,000 per deficiency, percalendar day. Compliance for at least six (6)months of the FCDU/EFCDU coverrequirement is a pre-condition for thefollowing:

a. Declaration of cash dividends;b. Bank’s application for branching;

and

c. In the case of foreign banks,remittance of profits to their Head Officeabroad.

Issuance by a bank of false/erroneouscertification that it has fully complied withthe FCDU/EFCDU cover requirements anydays of the reference month shall be subjectto a maximum monetary penalty ofPHP30,000 per day (reckoned from the datethe deficiency started until it is corrected)without prejudice to the imposition on theerring bank and/or the concerned bankofficers, of the penal sanctions providedunder Sections 35 and 36 of Republic ActNo. 7653.

The Due from Other Banks – Non-Resident (DFOB-Non-Resident) accountrepresenting cover for foreign currencyliabilities of FCDU/EFCDU shall be keptseparate and distinct from the DFOB – NonResident account for the regular bankingunit (RBU).

Section 74. Foreign Currency Depositswith the Bangko Sentral. Foreign currencydeposit with the BSP equivalent to at leastfifteen percent (15%) as a form of foreigncurrency cover referred to in Section 4 ofRepublic Act No. 6426, as amended, shallbe optional on FCDUs/EFCDUs of UBs/KBs and FCDUs of TBs and RBs/CoopBanks. The BSP may pay interest on theforeign currency deposit and if requested,shall exchange the foreign currency notesand coins into foreign currency instrumentsdrawn on its depository banks.

Section 75. Currency Composition of theCover. FCDUs of TBs and RBs/Coop Banksshall maintain the foreign currency coverin the same currency as that of thecorresponding foreign currency depositliability.

FCDUs/EFCDUs of UBs/KBs shallmaintain not less than seventy percent(70%) of the foreign currency cover in the

Sections 73 - 7509.12.31


same currency as that of the liability andthirty percent (30%) or less, at the option ofthe FCDU/EFCDU, may be denominated inother acceptable foreign currencies.

Section 76. Secrecy of Deposits. Pursuantto Republic Act No. 6426, as amended, allforeign currency deposits are declared asand considered of an absolutelyconfidential nature and, except upon thewritten permission of the depositor, orpursuant to a lawful order issued by acompetent court, in no instance shall suchforeign currency deposits be examined,inquired or looked into by any person,government official, bureau or officewhether judicial, administrative orlegislative, or any other entity whetherpublic or private.

Section 77. Numbered Accounts. Pursuantto Section 9 of Republic Act No. 9160 (TheAnti-Money Laundering Act of 2001) dated29 September 2001, as amended, and itsRevised Implementing Rules andRegulations, foreign currency non-checkingnumbered accounts shall be allowed:Provided, that the true identity of thecustomers of all foreign currency non-checking numbered accounts aresatisfactorily established based on officialand other reliable documents and recordsand the information and documents requiredare obtained and recorded by the bank.

Section 78. Withdrawability andTransferability of Deposits. There shall beno restrictions on the withdrawal by thedepositor of his deposit or on the transferof the same abroad except those arising fromthe contract between the depositor and thebank.

Section 79. Insurance Coverage. Foreigncurrency deposits shall be insured under theprovisions of Republic Act No. 3591, as

amended. Depositors are entitled to receivepayment in the same currency in which theinsured deposits are denominated.

Section 80. Rates of Interest. Foreigncurrency deposits shall not be subject tointerest rate ceilings.

Section 81. Eligibility as Collateral. Depositsunder the foreign currency deposit systemare eligible as collateral for peso loans orfor foreign currency loans to residents andnon-residents.

Section 82. Taxes. Pursuant to the NationalInternal Revenue Code of 1997, as amendedand its Implementing Rules and Regulations,any income of non-residents (whetherindividuals or corporations) fromtransactions with depository banks coveredunder this Chapter shall be exempt fromincome tax. Interest income derived byresidents (whether individuals orcorporations) from depository banks coveredunder this Chapter shall be subject to a finalincome tax at the rate of seven and one-halfpercent (7.5%) of such interest income. Thetransactions of FCDUs/EFCDUs shall,however, be subject to such taxes asprovided under the National InternalRevenue Code, as amended and itsImplementing Rules and Regulations.

Section 83. Exemption from Court Orderor Process. Subject to the provisions ofRepublic Act No. 9160, as amended,foreign currency deposits shall be exemptfrom attachment, garnishment, or any otherorder or process of any court, legislativebody, government agency or anyadministrative body whatsoever.

Section 84. Accounting. The foreigncurrency deposits and their correspondingcover shall be considered as funds separateand distinct from the regular assets and

Sections 75 - 8409.12.31


liabilities of the AABs. AABs shall maintaina separate accounting for transactionscovered by these rules that will enablepreparation of the Balance Sheet and IncomeStatement covering said funds.

For purposes of preparing the FCDU/EFCDU financial statements, the bank shalluse the US dollar (USD) as its functionalcurrency. However, for purposes ofconsolidating the FCDU/EFCDU financialstatements with the RBU financialstatements, these shall be translated into thepresentation currency, i.e. Philippine Peso(PHP).

The transfer of net realized/unrealizedlosses recognized in profit or loss and equityand Undivided Profits/(Losses) from FCDU/EFCDU to the Regular Banking Unit (RBU)shall be subject to the guidelines andconditions under Appendix 16.

The policy guidelines on the conversionand transfer of foreign currency-denominated loans, and Real and OtherProperties Acquired (ROPA) in the booksof the FCDU/EFCDU to peso loans andROPA in the books of the RBU shall besubject to the conditions provided underAppendix 17.

Banks which are authorized to operateunder this Chapter shall submit to the BSP-SES a separate audited financial statement(Category B report) of the FCDU/EFCDU forthe past year within ninety (90) calendardays after the start of the audit which auditshall start not later than thirty (30) calendardays after the close of the calendar/fiscal yearadopted by the bank in accordance with theprovisions of Section X166 of the MORB.

Section 85. Supervision. The Governor andthe head of the appropriate department ofthe BSP personally, or by deputies, areauthorized to verify the books of accountand transactions of each AAB, to verify theeligible cover, as well as review all otherrequirements under these regulations and

the bank’s compliance with the provisionsof law and these regulations.

Section 86. Prospective Effect ofRegulations. In the event a new enactmentor regulation is issued decreasing the rightshereunder granted, such new enactment orregulation shall not apply to foreigncurrency deposits already made or existingat the time of issuance of such newenactment or regulation, but such newenactment or regulation shall apply only toforeign currency deposits made after itsissuance.

Section 87. Sanctions1. Any willful violation of Republic

Act No. 6426, as amended, or anyregulation duly promulgated by theMonetary Board pursuant thereto shallsubject the offender upon conviction toan imprisonment of not less than one (1)year nor more than five (5) years or a fineof not less than Five Thousand Pesos(PHP5,000.00) nor more than Twenty-Five Thousand Pesos (PHP25,000.00), orboth such fine and imprisonment at thediscretion of the court.

The BSP may revoke or suspend theauthority of a bank to accept new foreigncurrency deposits for violation of RepublicAct No. 6426, as amended, or theseregulations, or if such bank ceases to possessthe minimum qualifications required.

2. Delayed submission of report bya bank and/or submission of erroneous/incomplete report shall be subject to themonetary penalties under Section 103.

3. Any violation of the provisions ofthis Chapter shall be subject to Section 37of Republic Act No. 7653. The guidelinesfor the imposition of monetary penalty forviolations/offenses with sanctions fallingunder Section 37 of Republic Act No. 7653on banks, their directors and/or officers areshown in Appendix 67 of the MORB.

Sections 84 - 8709.12.31


PART FOUR. FOREIGN EXCHANGEFORWARDS AND SWAPS AND OPENFOREIGN EXCHANGE POSITION OF

BANKS

Chapter I

FOREIGN EXCHANGE FORWARDSAND SWAPS INVOLVING THE

PHILIPPINE PESO

Section 88. General Policy. It is the policyof the BSP to support the deepening of thePhilippine financial markets. In line withthis policy, customers may, through foreignexchange forwards, hedge their market risksarising from foreign exchange obligationsand/or exposures: Provided, That forwardsale of foreign exchange (deliverable andnon-deliverable) may only be used whenthe underlying transaction is eligible forservicing using foreign exchange purchasedfrom AABs or AAB-forex corps. Customersmay, likewise, cover their fundingrequirements through foreign exchangeswaps.

AABs may only engage in foreignexchange forwards and swap transactionswith customers if the latter is hedging marketrisk or covering funding requirements. Thereshall be no double/multiple hedging suchthat at any given point in time, the totalnotional amount of the foreign exchangederivatives transaction/s shall not exceed theamount of the underlying foreign exchangeobligation/exposure.

The customer shall no longer be allowedto buy foreign exchange from AABs or AAB-forex corps for foreign exchange obligations/exposures that are fully covered bydeliverable foreign exchange forwards andforeign exchange swaps.

The following guidelines, as well asminimum documentary requirements, shallcover foreign exchange forward and swap

transactions involving the Philippine pesobetween authorized dealer banks and theircustomers.

Section 89. Definition of Terms“Customers” shall refer to: (a) resident

banks (other than KBs and UBs), and non-bank BSP supervised entities (NBBSEs) notauthorized to engage in foreign exchangeforwards and swaps as dealers; (b) residentnon-bank entities; and (c) non-residents,both banks and non-banks.

“Foreign exchange obligation” shallrefer to an actual commitment to repatriateor pay to a non-resident or any AAB aspecific amount of foreign currency on apre-agreed date.

“Foreign exchange exposure” shall referto foreign exchange risk arising from anexisting commitment which will lead to anactual payment of foreign exchange to, orreceipt of foreign exchange assets from, non-residents or any AAB based on verifiabledocuments on deal date. Foreign exchangerisks arising from BSP-registered foreigninvestments without specific repatriationdates are considered foreign exchangeexposures.

“Foreign exchange swap” shall refer toa transaction involving the actual exchangeof two currencies (principal amount only)on a specific date at a rate agreed on dealdate (the first leg), and a reverse exchangeof the same two currencies at a date furtherin the future (the second leg) at a rate(different from the rate applied to the firstleg) agreed on deal date.

“Foreign exchange forward” shall referto a contract to purchase/sell a specifiedamount of currency against another at aspecified exchange rate for delivery at aspecified future date three or more businessdays after deal date.

“Non-Deliverable Forward (NDF)” shallrefer to a foreign exchange forward contract

Sections 88 - 8909.12.31


where only the net difference between thecontracted forward rate and the market rateat maturity (i.e., the fixing rate) shall besettled on the forward date.

Section 90. Documentation. Minimumdocumentary requirements for foreignexchange forward and swap transactionslisted in Appendix 18 shall be presented onor before deal date to AABs unlessindicated.

Foreign exchange selling AABs shallstamp the supporting documents uponpresentation by customers as follows:

a. For hedging transactions: “FXHEDGED/DELIVERABLE” or “FX HEDGED/NON-DELIVERABLE”;

b. For funding transactions: “FXSOLD”,

indicating the contract date and amountinvolved, and signed by the AAB’sauthorized officer. Copies of all duly markedsupporting documents shall be retained byAABs and made available to the BSP forverification. The retained copies shall alsobe marked “DOCUMENTS PRESENTED ASREQUIRED” and signed by the AAB’sauthorized officer.

Section 91. Tenor/Maturity and Settlementa. Forward Sale of Foreign Exchange

(whether deliverable or non-deliverable)The tenor/maturity of such contracts

shall not be longer than:(i) the maturity of the underlying

foreign exchange obligation; or(ii) the approximate due date or

settlement of the foreign exchange exposure.For deliverable foreign exchange forwardcontracts, the tenor/maturity shall beco-terminus with the maturity of theunderlying obligation or the approximatedue date or settlement of the foreignexchange exposure. This shall not preclude

pretermination of the contract due toprepayment of the underlying obligation orexposure: Provided, That for foreigncurrency loans, prior BSP approval has beenobtained for the prepayment and a copy ofsuch approval is presented to the AABcounterparty.

b. Foreign Exchange SwapsNo restriction on tenor.c. Settlement of NDFsAll NDF contracts with residents shall

be settled in pesos.d. Remittance of foreign exchange

proceeds of deliverable forward and swapcontracts

Foreign exchange proceeds ofdeliverable forward and swap contracts shallbe delivered by the AAB counterpartydirectly to the beneficiaries concernedexcept for foreign investments where saidFX proceeds are reconverted to Philippinepesos and re-invested in eligible pesoinstruments such as those listed in ItemA.2.2 of Appendix 18. For this purpose,beneficiaries shall refer to the FCDU/EFCDU of a bank or a non-resident entity(e.g., creditor, supplier, investor) to whomthe customer is committed to pay/remitforeign exchange.

Section 92. Forward Contracts with Non-residents

All forward contracts to sell foreignexchange to non-residents (including OBUs)with no full delivery of principal, includingcancellations, roll-overs/renewals shall besubmitted to the BSP for prior clearance.However, every roll-over of short-term (ST)deliverable forward contracts with non-residents need not be prior approved:Provided, That:

1. The underlying transaction for eachST deliverable foreign exchange forwardcontract is a foreign investment in long-term(LT) Philippine government securities for

Sections 89 - 9209.12.31


which a Bangko Sentral RegistrationDocument (BSRD) has been issued;

2. The roll-over is effected during thetenor of the underlying LT Philippinegovernment securities;

3. The actual delivery/settlement of theforward contract coincides with the dateof the intended capital repatriation of theBSP-registered investments;

4. The value of the forward contractdoes not exceed the foreign currencyequivalent of the maturity value/netproceeds of the BSP-registered investmentscomputed at the agreed forward exchangerate; and

5. The repatriation of capital andremittance of income for the BSP-registered investment complies withdocumentary requirements under existingBSP rules.

Section 93. Cancellations, Roll-overs orNon-delivery of Deliverable ForeignExchange Forward and Swap Contracts

All cancellations, roll-overs or non-delivery of al l foreign exchangedeliverable forward contracts and theforward leg of swap contracts shall besubject to the following guidelines todetermine the validity thereof:

a. Eligibility Test - Contracts must besupported by documents listed inAppendix 18;

b. Frequency Test - thereasonableness of the cancellation, roll-overor non-delivery shall be based on the resultsof the evaluation of the justification/explanation submitted by banks asevidenced by appropriate documents;

c. Counterparty Test – thecancellation or roll-over of contracts mustbe duly acknowledged by the counterpartyto the contract as shown in documentssubmitted by banks, e.g., there should beconforme of counterparty as evidenced by

the counterparty signature on pertinentdocuments; and

d. Mark-to-Market Test – the bookingor recording in the books of accounts of theprofit or loss on contracts and cash flows/settlement to counterparties must be fullysupported by appropriate documents suchas authenticated copy of debit/credit tickets,schedules showing among others, mark-to-market valuation computation, etc.

Section 94. Reporting RequirementsBanks duly authorized to engage in

derivatives transactions shall continue to becovered by the BSP’s existing reportingrequirements on financial derivatives.Cancellations, roll-overs or non-delivery ofdeliverable foreign exchange forwardcontracts and under the forward leg of swapcontracts shall be reported electronically inexcel format to the BSP not later than five(5) banking days after reference month usingthe prescribed format in Annex L.

Swap contracts with counterpartiesinvolving purchase of foreign exchange bybanks at the initial leg shall likewise bereported electronically in excel format to theBSP not later than five (5) banking days afterreference month using the prescribed formatin Annex M .

The reports shall be transmitted to theInternational Operations Department [email protected], copy furnished theSupervisory Data Center (SDC) at thefollowing addresses: [email protected] (for Domestic Banks) [email protected] (for Foreign Banks).

Section 95. Non-Bank BSP-SupervisedEntities (NBBSEs)

NBBSEs that may subsequently beauthorized to engage in foreign exchangeforwards and swaps as dealers shalllikewise be covered by the provisions ofthis Chapter.

Sections 92 - 9509.12.31


Chapter II

OPEN FOREIGN EXCHANGEPOSITION OF BANKS

Section 96. General Policy. It is the policyof the BSP to promote the growth anddevelopment of the foreign exchange market.It is also recognized that banks are the mainplayers in this market, primarily in their roleas “market-makers”1. Thus, in order toensure that banks are able to provide ampleliquidity in the market but, at the same time,conduct their business in a sound manner,and guard against speculative activity, limitson their net open foreign exchange positionare instituted.

Section 97. Definition of Terms“Open Foreign Exchange Position” shall

refer to the extent that banks’ foreignexchange assets do not match their foreignexchange liabilities. An open position mayeither be “positive”, “long”, or “overbought”(i.e., foreign exchange assets exceed foreignexchange liabilities) or “negative”, “short”,or “oversold” (i.e., foreign exchangeliabilities exceed foreign exchange assets).

“Unimpaired capital” shall refer to abank’s total capital net of (a) suchunbooked valuation reserves and othercapital adjustments as may be required bythe BSP; (b) total outstanding unsecuredcredit accommodations, both direct andindirect, to directors, off icers,stockholders, and their related interests(DOSRI); (c) deferred income tax; (d)equity investment of a bank in anotherbank or enterprise whether foreign ordomestic, if the other bank or enterprisehas a reciprocal equity investment in theinvesting bank, in which case, theinvestment of the bank or the reciprocalinvestment of the other bank orenterprises, whichever is lower; and

(e) appraisal increment reserves(revaluation surplus) arising from anappreciation or an increase in the bookvalue of bank assets.

“Permanently assigned capital” shallrefer to the minimum capital required forbranches of foreign banks in thePhilippines to be inwardly remitted andconverted into pesos.

“Unimpaired capital of foreign banks”,for purposes of this Chapter, shall bedefined as “permanently assigned capital”plus the “Net Due To Head Office”account: Provided, That the amount of NetDue To Head Office that may be addedto the permanently assigned capital offoreign banks that are UBs shall notexceed the equivalent of six (6) times thepermanently assigned capital. Providedfurther; That the amount of Net Due ToHead Office that may be added to thepermanently assigned capital of foreignbanks that are KBs shall not exceed theequivalent of eight (8) t imes thepermanently assigned capital.

Section 98. Allowable Open ForeignExchange Position. Banks’ allowable openforeign exchange position (eitheroverbought or oversold) shall be the lowerof 20 percent (20%) of their unimpairedcapital or USD50 million.

Any excess of the allowable limit shallbe settled on a daily basis.

Penalties on excess overbought andoversold positions of banks when PDStrading is suspended shall be waived.

Section 99. Computation of ForeignExchange Position. Banks’ open foreignexchange position shall be computed dailybased on their FX Form 1. The guidelineson the computation of foreign exchangeposit ion of banks and reportingrequirements are outlined in Appendix 19.

Sections 96 - 9909.12.31

1 There are two facets to this role. First, banks must be able to quote rates to their customers at which they stand ready to buyand sell currencies. Second, banks themselves may take open positions in currencies.


Section 100. Sanctions. The followingsanctions shall be imposed on banksfound in violation of the net open foreignexchange position limits:

a. A bank is considered immediatelyin violation of the open foreign exchangeposition limit on the day it exceeds suchlimit. Such bank shall be subject to thefollowing monetary penalties:

Per Calendar Month Daily Penalty

1st calendar day of violation PHP10,000.00 2nd calendar day of violation PHP20,000.00 3rd calendar day of violation, PHP30,000.00 and onwards, or if the excess open foreign exchange position of the bank is thirty percent (30%) or more of the allowable limit in any calendar day, regardless of whether a bank is in first, second, third or more days of violation

b. In addition, the following non-monetary sanctions shall be imposed onthe bank commi t t ing v io la t ionsconsidered as:

1 ) “chronic”, that is , when theviolation continues beyond three (3)banking days within a calendar month,but the excess position is less than thirtypercent (30%) of the allowable limit; and

2 ) “abusive”, that is , when theviolation continues beyond three (3)banking days within a calendar month andthe excess position is thirty percent (30%)or more of the allowable limit.

Non-Monetary Sanctions"chronic" violation suspension of bank's rediscounting privileges, cash dividend declaration and branching privileges until the violation is corrected but in no case shall such suspension be less than 30 calendar days"abusive" violation suspension of bank's rediscounting privileges, cash dividend declaration and branching privileges until the violation is corrected but in no case

shall such suspension be less than 60 calendar days

c. The Monetary Board may imposeother non-monetary sanctions on a bankfor violations determined by BSP as“chronic” or “abusive” on a case-to-casebasis, pursuant to Section 37 of RepublicAct No. 7653.

PART FIVE. GENERAL PROVISIONS

Chapter I

REPORTS AND POST VERFICATION

Section 101. Reportorial RequirementsThe following reports are required to besubmitted to the Bangko Sentral by AABs,OBUs, and AAB-forex corps whereapplicable:

Title of Report Submission Submission Process Frequency/Deadline Category A. Consolidated Report on Foreign Exchange Assets and Liabilities For UBs/KBs A-3 FX Form 1, Main Report Weekly, within five (5) email to DES at banking days after end of der.itrs@bsp. gov. ph reference week A-3 FX Form 1, Schedule 1 Weekly, within five (5) email to DES at banking days after end of [email protected]

reference week A-3 FX Form 1, Schedules 2 to 7, Weekly, within five (5) email to DES at 9 to 12 banking days after end of [email protected] reference date (hard copy of Schedule

10 & 11 to ID)

Sections 100 - 10112.12.31


Title of Report Submission Submission Process Frequency/Deadline

Sworn Certification – FX Form 1 Weekly, within three (3) Hard copy to DES Main Report and Schedules banking days after

2 to 7, 9 to 12 (Annex T) submission deadline for the covered reports/schedules

A-3 FX Form 1, Schedules 8 &13 Daily, within two (2) email to SDC at banking days after end of [email protected] or sedi- reference date [email protected]

Sworn Certification – FX Form 1 Weekly, within three (3) Hard copy to SDC Schedules 8 &13 (Annex U) banking days after end of

reference weekA-3 FX Form 1, Schedule 14 Monthly, within 15 banking email to SDC at

days after end of reference [email protected] or sedi- month [email protected]

A-3 Consolidated Foreign Exchange Daily, within three (3) Hard copy to SDC Position Report banking days from

reference date For TBs: B FX Form 1A, Main Report and Monthly, within ten (10) e-mail to DES at

Schedules 2 to 9 banking days after end of [email protected] reference month

B. Foreign Trade Transactions A-3 Report on Export Proceeds Weekly, within five (5) e-mail to DES at

FX Form 1, Schedule 9 banking days after end of [email protected] reference week

A-3 Report on Import Letters of Credit -do- e-mail to DES (L/Cs) Opened and DA-OA Import [email protected] Availments and Extensions, FX (hard copy to ID) Form 1, Schedule 10 A-3 Report on Import Payments -do- e-mail to DES FX Form 1, Schedule 11 [email protected]

(hard copy to ID) Monthly Report on Sale/Remittance Monthly, within the first five Hard copy to ID of Foreign Exchange (FX) for (5) banking days of the Advance Payment of Importations month succeeding the date up to USD100,000.00 (Annex B) of foreign exchange sale Monthly Report on Purchase of Monthly, within the first five Hard copy to ID Foreign Exchange (FX) from (5) banking days of the Refund of Advance Payment of month succeeding the Importations up to USD100,000.00 receipt of the refund (Annex C) C. Foreign Currency Loans and Related Transactions

A-2 Report on Bank Liabilities to Non- Monthly, within fifteen (15) email to ID at Residents (including hard copy of banking days after end of [email protected] Certification for correctness and reference month consistency with FRP), ID-Form 5 B Consolidated Report on Loans Monthly, within fifteen (15) Hard copy and

Granted by FCDUs, IOS Form 4 banking days after end of diskette to ID reference month

Section 10112.12.31


Title of Report Submission Submission Process Frequency/Deadline B Report on Guarantees Issued by Quarterly, within fifteen (15) Hard copy to ID Local Banks and Financial banking days from end of Institutions in Favor of Non- reference quarter Residents, R-1 (Annex G) B Report on Foreign Guarantees Quarterly, within fifteen (15) Hard copy to ID Securing Loans of Residents from banking days from end of Local Banks and Financial reference quarter Institutions, R-4 (Annex H) B Report on Cancellations, Monthly, within five (5) email to ID at Roll-overs and Non-delivery of banking days after end of [email protected] Deliverable Foreign Exchange reference month Forward Purchase and Sale Contracts and Forward Leg of Swap Contracts (Annex L) B Report on Foreign Exchange -do- -do- Swaps with Customers where the First Leg is a Purchase of Foreign Exchange Against Pesos (Annex M) D. FCDUs/EFCDUs Report on Inventory of Philippine Weekly, within three (3) Original to SDC Debt Papers banking days after end of reference week Sworn Certification on Monthly, within five (5) Hardcopy to SDC FCDU/EFCDU Lending to RBU banking days from end of (Appendix 14) reference month B Audited Financial Statement of Annually, within ninety (90) Hardcopy to FCDU/EFCDU calendar days after the start appropriate SES of audit which audit shall department start not later than thirty (30) calendar days after the close of the calendar/fiscal

year adopted by the bank A-2 Report on Compliance with Quarterly, within fifteen (15) Generated by SDC FCDU/EFCDU Cover Requirements banking days after end of using FRP data (Appendix 15) reference quarter submitted by bank Sworn Certification of Compliance Quarterly, within fifteen (15) Hardcopy to SDC with FCDU/EFCDU Cover banking days from end of Requirements (Appendix 15.1) reference quarter E. Offshore Banking Units Statement of Assets and Liabilities Monthly, within fifteen (15) Hard copy to SDC

banking days after end of reference month

Schedule 1 – Maturity Profile of -do- Sources and Uses of Funds Schedule 2 Page 1 – Currency -do- Classification of Funds (In US Dollars) Schedule 2 Page 2 – Currency -do- Classification of Funds (In Original Currencies)

Section 10112.12.31


Title of Report Submission Submission Process Frequency/Deadline

Schedule 3 – Country Classification Monthly, within five (5)of Interbank Funds/Non-Bank banking day after end of

Funds reference month Schedule 4A – Report on Loans -do- Granted by OBUs: Part I – Credit Information (In Original Currencies) Schedule 4B– Report on Loans -do- Granted by OBUs: Part II – Credit Status Schedule 4C – Loans and -do- Discounts – Residents: By Borrower/By Economic Activity/By Status Schedule 5 – Investments in Bonds -do- and Other Debt Instruments (In Original Currencies and USD Equivalent) Schedule 5A – Investments in -do- Bonds and Other Debt Instruments Issued by Residents Schedule 6 – Indebtedness Among -do- Banks Operating in the Philippines Schedule 7 – Report on OBU -do- Liabilities to Non-Residents (In Original Currencies and USD Equivalent) Schedule 8 – Report on Spot and -do- Forward Foreign Exchange Transactions of OBUs Schedule 9 – Report of Foreign -do- Exchange Flows Schedule 9A – Foreign Exchange -do- Actually Sold to Authorized Agent Banks (AABs) Schedule 9B – Details of -do- Investment Receipts/Disbursements Statement of Earnings and Semi-annual, within fifteen Expenses, BSP 6.40.02 (15) banking days after end

of reference semester Financial Assistance and Training Annually, within ten (10) Granted by OBUs to its Filipino banking days after end of Staff reference year Updated List and Bio-Data of Annually, within ten (10) Expatriates banking days after end of

reference year F. Representative Offices of Foreign Banks FX Cash Receipts and Cash Monthly, within ten (10) Hard copy to SDC Disbursements banking days after end of reference month

Section 10112.12.31


Section 102. Procedures for ReportingReports shall be filed with the BSP MainOffice or with the BSP Regional Officesor by sending them by mail or specialdelivery, unless otherwise specified.The date of acknowledgment of receipton the copy of the report (if mailed)shall be considered as the date ofsubmission.

Section 103. Fines and Penalties1. The following schedule of fines

for delayed submission of reports and/or incomplete/erroneous reporting shallapply:

A. For Category A-1, A-2, and A-3reports: a. UBs/KBs : PHP 1,200 per calendar day b. TBs : PHP 600 per calendar day c. RBs/Coop Banks : PHP 180 per calendar day

B. For Category B reports: a. UBs/KBs : PHP 240 per calendar day b. TBs : PHP 120 per calendar day c. RBs/Coop Banks : PHP 60 per calendar day

C. For Reports of RepresentativeOffices of Foreign Banks and Reports ofUBs/KBs, TBs, and RBs/Coop Banks NotClassified as Category A or B Reports:

a. PHP100 per calendar day for thefirst five (5) successive calendar days ofdelay

b. PHP150 per calendar day for thenext five (5) successive calendar days ofdelay

c. PHP200 per calendar day after thefirst ten (10) successive calendar days ofdelay until the particular report has beenfiled.

D. For Reports of OBUsPHP500 per calendar day except for

the following reports where the abovefines and penalties for representativeoffices of foreign banks shall apply:

a. Statement of Earnings andExpenses;

b. Financial Assistance and TrainingGranted by OBUs to its Filipino Staff;and

c. Updated List and Bio-Data ofExpatriates.

Title of Report Submission Submission Process Frequency/Deadline Annual Report of Head Office Within five (5) months after Hard copy to SDC end of fiscal/calendar year G. Custodian Banks/Remitting AABs A-2 Statement of Remittance Report (For Daily, within two (2) Hard copy to IOD Registered Foreign Direct Investments), banking days from date of together with supporting actual remittance documents required under Items C.1(b) and C.2 of Appendices 1 and 11 A-2 Consolidated Daily Foreign Portfolio Daily, within two (2) Soft copy to IOD at Investment Registration and Outward banking days from iod-pid @bsp.gov.ph, Remittance Report, together with transaction date supported by hard copies supporting documents required of supporting documents under Items C.1(a) and C.2 of listed under Appendices Appendices 1, 10 and 11 1, 10 and 11 H. AAB-forex corps Report on Foreign Exchange Weekly, within five (5) e-mail to DES Transactions banking days after end of reference week

Sections 101 - 10312.12.31

(As amended by Circular No. 751 dated 16 March 2012)


Sections 103 - 10609.12.31

E. For Reports of AAB-Forex corpsPHP 1,000 per calendar day of delay

until compliedF. Chronic delayed reporting including

submission of amended reports required forFX Form 1 shall be subject to an additionalmonetary penalty of PHP 2,000.00 perbanking day until the respective report andschedules are correctly submitted.

Submission of delayed reports, includingamended reports, shall be consideredchronic based on the following:

Name of Report/ Frequency of No. of times Schedule Submission delay Schedules 8 & 13 Daily More than seven (7) times delayed per month Main Report, Weekly At least two (2) Schedules 2 - 7 times delayed per and 9 - 12 month or five (5) banking days of continuous delay from submission deadline Schedule 14 and Monthly More than two Reconciliation (2) times delayed Statement per semester or ten (10) banking days of continuous delay from the submission deadline

2. Manner of payment or collection offines:

a. Fines shall be collected through debitto the AAB’s current account depositmaintained with the BSP by the FinancialAccounting Department upon receipt ofnotice from the department/s concerned; or

b. In case payment of fines is effectedthrough check or cash, the same shall beremitted to the Cash Department of the BSPthrough the department/s concerned.

Section 104. Post-VerificationPost-verification of foreign exchangetransactions covered by this Manual andreported under Section 101 hereof shall beundertaken by the BSP to verify compliancewith the provisions of this Manual and for

monitoring purposes.

Chapter II

FINAL PROVISIONS

Section 105. Compliance with Anti-MoneyLaundering Rules

All transactions under this Manual shallcomply with existing regulations on anti-money laundering pursuant to theprovisions of Republic Act No. 9160, asamended.

Section 106. Penal Sanctions. Any personviolating the provisions of this Manual shallsuffer the penalties prescribed underSection 36 of Republic Act No. 7653.

Administrative sanctions may also beimposed upon institutions within BSP’sadministrative authority found violating thisManual, including their directors andofficers responsible for such violation.

These penalties may be any or all ofthe following as circumstances warrant:

1. Monetary sanction - The amount ofPHP30,000.00 penalty imposed per dayper violation committed shall be based ona per transaction basis;

2. Non-monetary sanction - This shallbe based on the gravity of the offense orviolation:

a. Reprimand of bank officers whoapproved the transaction;

b. Suspension of bank officers whoapproved the transaction;

c. Suspension of directors (for localbanks) and Country Manger (for foreign banks);

d. Permanent disqualification of bankofficers/directors;

e. Reduction or suspension ofoverbought/oversold limits;

f. Suspension of opening of L/Cs andover-the-counter sale of foreign exchangefor a period of up to six (6) months;

g. Suspension of derivatives activitiesfor a period of up to six (6) months; and


h. Suspension of FCDU/EFCDUauthority for a period of up to six (6) months.

Section 107. Repealing Clause. All existingBSP rules and regulations on currentaccounts, capital accounts, OBUs,representative offices of foreign banks,FCDUs/EFCDUs, foreign exchangeforwards and swaps involving the Philippinepeso, and open foreign exchange positionof banks, as well as all other existing BSPrules and regulations or parts thereof whichare inconsistent with or contrary to theprovisions of this Manual are herebyrepealed or modified accordingly: Provided,That regulations, violations of which are thesubject of pending actions or investigations,shall not be considered repealed insofar assuch pending actions or investigations areconcerned, it being understood that as tosuch pending actions or investigations, theregulations existing at the time the cause ofaction accrued shall govern.

Section 108. Separability Clause. Nothingherein is intended nor shall be construed,to repeal or amend any law or statute.Should any provision of this Manual bedeclared unconstitutional or invalid, theremaining provisions or parts thereof shallremain in full force and effect, and continueto be valid and binding.

Glossary of Terms

FOR PURPOSES OF THIS MANUAL, thefollowing definitions are adopted:

Advance Payment is an arrangementbetween the seller and buyer where thebuyer pays, either partial or full, theseller prior to the shipment of thegoods.

Affiliate refers to an entity linkeddirectly or indirectly to a bank by means of:

a. Ownership, control or power tovote, of ten percent (10%) to fifty percent(50%) of the outstanding voting stock of the

entity, or vice-versa;b. Interlocking directorship or

officership, except in cases involvingindependent directors as defined underexisting regulations;

c. Common stockholders owning tenpercent (10%) to fifty percent (50%) of theoutstanding voting stock of each financialintermediary and the entity;

d. Management contract or anyarrangement granting power to the bank todirect or cause the direction of managementand policies of the entity, or vice-versa; and

e. Permanent proxy or voting trusts infavor of the bank or quasi-bank constitutingten percent (10%) to fifty percent (50%) ofthe outstanding voting stock of the entity,or vice-versa.

Authorized Agent Banks (AABs) shallrefer to all categories of banks [exceptOffshore Banking Units (OBUs)] dulylicensed by the BSP. It is understood that eachcategory of bank should function within theoperational parameters defined by existinglaws/regulations for the specific bank categoryto which they respectively belong.

AAB-forex corps, whether or not namedas such, shall refer to AAB subsidiary/affiliateforex corporations whose business includebuying and selling of foreign exchange.

Balikbayan is a Filipino that hasestablished permanent residence abroad.

Cash Against Document (CAD) is anarrangement whereby the buyer pays theexporter upon the former’s receipt of theshipping documents sent to him by theexporter either directly or through the banks.

Consignment is an arrangementwhereby payment is contingent upon thesale to third parties abroad of the exportedcommodities by consignee.

Direct Remittance (DR) is a supplier-buyer arrangement where payment is madewithin 29 calendar days from bill of lading/airway bill date.

Documents Against Acceptance (D/A)is an arrangement under documentary

Sections 106 - 108/Glossary11.12.31


collection in which an exporter instructs thepresenting bank to hand over shipping and titledocuments to the importer only if the importeraccepts and signs the accompanying bill ofexchange or draft.

Documents Against Payment (D/P) is anarrangement under documentary collection inwhich an exporter instructs the presentingbank to hand over shipping and titledocuments to the importer only if the importerfully pays the accompanying bill of exchangeor draft.

Electronic transfer is a system where theauthority to debit or credit an account (bank,business or individual) is provided by wire,with or without a source document beingmailed to evidence the authority.

Financial Institutions shall refer tobusiness organizations that offer a broad baseof financial services or specialize in specificfinancial functions, products, or services, e.g.banks, investment houses, pension funds,pawnshops, credit unions, investmentcompanies, insurance companies, securitiesbrokers and dealers, stock exchanges, mutualfunds, trust corporations, leasing companies,financing companies, credit card companies,companies engaged in foreign exchangedealership/brokerage and others that deal inmoney.

Foreign Bank shall refer to a bank orbanking corporation formed, organized andexisting under any foreign law.

Foreign Currency Deposit Unit (FCDU)/Expanded Foreign Currency Deposit Unit(EFCDU) shall refer to a unit of a local bank orof a local branch of a foreign bank authorizedby the BSP to engage in foreign currency-denominated transactions, pursuant to theprovisions of Republic Act No. 6426, asamended.

Foreign Currency Loans are loansdenominated in currencies other than thePhilippine peso, regardless of the creditor.

Foreign Loans are loans owed tonon-residents, regardless of currencydenomination.

Forex Corporations, whether or notnamed as such, refer to entities whose businessinclude buying and selling of foreignexchange.

Intercompany Open Account OffsetArrangement (Interco O/A) is an arrangementwhereby the exporter offsets its payables toagainst its receivables from, its parent/affiliatecompany abroad.

Legal Tender refers to money recognizedby law as acceptable payment for debts owedto creditors.

Letter of Credit (L/C), which gives theseller assurance that he will receive thepayment for the goods, is binding documentthat a buyer can request from his bank in orderto guarantee that the payment for goods willbe transferred to the seller. In order for thepayment to occur, the seller has to presentthe bank with the necessary shippingdocuments confirming the delivery of goodswithin a given time frame.

Low-Cost Housing refers to housingpackages with loan ceilings ranging fromabove PHP400,000 up to PHP3 million or insuch other amounts which HUDCC mayprescribe in the future.

Medium- and Long-Term Loans are creditswith maturities exceeding one (1) year.

Non-bank BSP-supervised entities(NBBSEs) refer to non-bank entities that fallunder the supervisory authority of the BSPunder Republic Act No. 7653 (The NewCentral Bank Act), Republic Act No. 8791(The General Banking Law of 2000) and otherspecial laws. These include quasi-banks,subsidiaries and affiliates of AABs/quasi-banks, non-banks with trust or investmentmanagement activities license, non-stocksavings and loan associations, andpawnshops.

Non-resident refers to an individual, acorporation or other juridical person notincluded in the definition of resident.(See “Resident”)

Non-trade current accounttransactions refer to all non-trade

Glossary11.12.31


transactions (also referred to as invisibles)excluding those related to foreign/foreigncurrency loans and foreign investments.

Non-trade transactions refer to all otherforeign exchange transactions not included inthe definition of trade transactions. These shallinclude foreign loans and foreign investments.(See “Trade Transactions”)

Offshore Banking refers to the conductof banking transactions in foreign currenciesinvolving the receipt of funds principally fromexternal sources and, as allowed in thisManual, from internal sources and utilizationof such funds, as provided herein.

Offshore Banking Unit (OBU) refers to abranch, subsidiary, or affiliate of a foreignbanking corporation which is duly authorizedby the BSP to transact offshore bankingbusiness in the Philippines. For purposes ofthis Manual, OBUs are classified as non-residents.

Open Account (O/A) is an arrangementwhereby the shipping documents are sent andreleased by the exporter directly to the buyer,without coursing the documents through thebanks, upon the buyer’s promise to pay atsome future date after shipment.

Red Clause is a clause (originally typed inred) added to a letter of credit authorizing theadvising/negotiating bank to make an advancepayment to the beneficiary (exporter) beforethe actual shipment to the buyer. The advancemay be up to 100% of the export contractvalue and may be used by the exporter to buythe inputs for manufacturing or shipment. Redclause credits are used primarily when thebuyer (importer) has an agent in the exportingcountry. To finance its purchases, the importermay arrange for the opening of a red clauseletter of credit. Negotiations of red clausecredits are limited to the bank making the

advances in order to assure that revenues fromthe shipment are used to repay the advancesmade.

Representative Office shall refer to aliaison office of a foreign bank which dealsdirectly with the public by promoting andgiving information about the foreign bank’sservices offered. It does not include theregional or area headquarters of a foreign bankregistered and licensed under existing laws.

Resident shall refer to –a) an individual citizen of the Philippines

residing therein; orb) an individual who is not a citizen of

the Philippines but is permanently residing1

therein; orc) a corporation or other juridical person

organized under the laws of the Philippines;or

d) a branch, subsidiary, affiliate,extension office or any other unit ofcorporations or juridical persons which areorganized under the laws of any country andoperating in the Philippines, except OBUs.

Short-term loans are credits with maturitynot exceeding one (1) year.

Socialized housing refers to housingpackages with loan ceilings of not more thanPHP400,000, or in such other amounts whichthe HUDCC may prescribe in the future.

Small-scale mining refers to miningactivities which rely heavily on manual laborusing simple implement and methods and donot use explosives or heavy mining equipment

Subsidiary (of a bank) refers to acorporation or firm more than fifty percent(50%) of the outstanding voting stock of whichis directly or indirectly owned, controlled orheld with power to vote by a bank.

Trade transactions refer to merchandiseexport and/or import transactions.

Glossary11.12.31

1 Residents include any individual, citizen or otherwise, who has resided in the Philippines for a year or longer,as defined in Section 83 of IMF Balance of Payments Textbook 1996.

For an updated version of the FX Manual, please visit http://www.bsp.gov.ph/regulations/reg_MORB.asp then click on the Manual of Regulations on Foreign Exchange Transactions.