[In relation to: Section 35 of the General Banking D.

Even if a parent corporation, partnership, international or local development agencies,

Law] association, entity or an individual who owns or organizations or institutions especially designed for
controls a majority interest in such entities has no wholesale lending activities of government banks; (c)
liability to the bank, the liabilities of subsidiary the end-user borrowers of the PFIs shall be subject to
CIRCULAR NO. 425
corporations or members of the partnership, the 25% SBL, not the increased ceiling of 35%; and (d)
Series of 2004
association, entity or such individual shall be government banks shall observe appropriate criteria
combined under certain circumstances, including but for accrediting PFIs and for the grant/renewal of credit
The Monetary Board, in its Resolution No. 299 dated not limited to any of the following situations: (a) the lines to accredited PFIs.
March 11, 2004, approved the following amendments parent corporation, partnership, association, entity or
to Section X303, Subsections X303.1 to X303.5 and individual guarantees the repayment of the liabilities;
G. Loans and other credit accommodations as well as
Subsection X347.2 of the Manual of Regulations for (b) the liabilities were incurred for the accommodation
deposits maintained with, and usual guarantees by a
Banks (MOR) to implement Section 35 of Republic Act of the parent corporation or another subsidiary or of
bank to any other bank or non-bank entity, whether
(R.A.) 8791, The General Banking Law (GBL) of 2000. the partnership or association or entity or such
locally or abroad, shall be subject to the limits as
individual; or (c) the subsidiaries though separate
herein prescribed.
entities operate merely as departments or divisions of
SECTION 1. Section X303 of the MOR and its
a single entity.
subsections are hereby amended to read as follows:
Deposits of rural banks and cooperative banks
(RBs/Coop Banks) with government-owned or
E. For purposes of this section, loans, other credit
SECTION X303. Credit Exposure Limits to a Single controlled financial institutions like the Land Bank of
accommodations and guarantees shall exclude:
Borrower. the Philippines and the Development Bank of the
Philippines shall not be covered by the SBL imposed
(a) loans and other credit accommodations secured by under R. A. No. 8791.
A. Consistent with national interest, the total amount
obligations of the Bangko Sentral or of the Philippine
of loans, credit accommodations and guarantees that
Government;
may be extended by a bank to any person, In municipalities and cities where there are no
partnership, association, corporation or other entity government banks, the deposits of RBs/Coop Banks in
shall at no time exceed twenty five percent (25%) of the (b) loans and other credit accommodations fully private banks in said areas shall not be subject to the
net worth of such bank. The basis for determining guaranteed by the government as to the payment of SBL. Deposits in private banks located in other
compliance with the single borrower’s limit (SBL) is the principal and interest; municipalities/cities shall be covered by the SBL.
total credit commitment of the bank to or on behalf
of the borrower.
(c) loans and other credit accommodations secured by The outstanding balance of the deposit in a private
U.S. treasury notes and other securities issued by depository bank being used by the Thrift
B. The total amount of loans, credit accommodations central governments and central banks of foreign Banks/RBs/Coop Banks with authority to
and guarantees prescribed in the first paragraph may countries with the highest credit quality given by any accept/create demand or current deposits, to fund
be increased by an additional ten percent (10%) of the two internationally accepted rating agencies; checks cleared through the said private depository
net worth of such bank: Provided, That the additional bank shall also be exempt from the SBL even if there is
liabilities are adequately secured by trust receipts, a government-owned or controlled financial institution
(d) loans and other credit accommodations to the
shipping documents, warehouse receipts or other in the area.
extent covered by the hold-out on or assignment of,
similar documents transferring or securing title
deposits maintained in the lending bank and held in
covering readily marketable, non-perishable goods
the Philippines; (e) loans, credit accommodations and Subsection X303.1 Definition of Terms.
which must be fully covered by insurance.
acceptances under letters of credit to the extent
covered by margin deposits; and
For purposes of this Circular, the following definitions
C. The above prescribed ceilings shall include: (a) the
shall apply:
direct liability of the maker or acceptor of paper
(f) other loans or credit accommodations which the
discounted with or sold to such bank and the liability
Monetary Board may from time to time specify as non-
of a general endorser, drawer or guarantor who obtains a. Total Credit Commitment shall include outstanding
risk items.
a loan or other credit accommodation from or loans and other credit accommodations, deferred
discounts paper with or sells papers to such bank; (b) letters of credit less margin deposits, and
in the case of an individual who owns or controls a F. The wholesale lending activities of government guarantees. Except as specifically provided, total
majority interest in a corporation, partnership, banks to participating financial institutions for credit commitment shall be reckoned on credit risk-
association or any other entity, the liabilities of said relending to end-user borrowers shall at no time weighted basis consistent with existing regulations.
entities to such bank; (c) in the case of a corporation, exceed a separate limit of thirty-five percent (35%) of
all liabilities to such bank of all subsidiaries in which net worth, subject to the following guidelines: (a) it
b. Loans shall refer to all the accounts under the loan
such corporation owns or controls a majority interest; shall apply only to loans granted to participating
portfolio of a bank as enumerated in the manual of
and (d) in the case of a partnership, association or financial institutions (PFIs) on a wholesale basis for
accounts for banks.
other entity, the liabilities of the members thereof to on-lending to end-user borrowers; (b) it shall apply
such bank. only to loan programs funded by multilateral,
c. Other Credit Accommodations shall refer to credit h. Subsidiary shall refer to a corporation or firm more The liabilities to the bank of borrowers whose papers
and specific market risk exposures of banks arising than fifty percent (50%) of the outstanding voting stock were rediscounted by banks with the Bangko Sentral
from accommodations other than loans such as of which is directly or indirectly owned, controlled or shall not be deemed as having been extinguished by
receivables (sales contract receivables, accounts held with power to vote by its parent corporation. the rediscount, but shall be considered as still existing
receivables and other receivables), and debt securities and shall be included in determining the SBL until
booked as investments. such papers are paid by the borrowers.
i. Credit Risk Transfer shall refer to any arrangement
that allows the bank to transfer the credit risk
d. Bank Guarantee. A bank guarantee is an associated with its loan or other credit accommodation Subsection X303.3 Credit Risk Transfer.
irrevocable commitment of a bank binding itself to pay to a third party.
a sum of money in the event of non-performance of a
Subject to prior approval of the Bangko Sentral, loans
contract by a third party. The guarantee is a
j. Readily Marketable Goods shall mean articles of and other credit accommodations covered by a legally
commitment separate and distinct from the principal
commerce, agriculture or industry of such uses as to effective credit risk transfer arrangement such as
debt or contract.
make them the subject of constant dealings in ready guarantee, letter of indemnity, standby letter of credit
markets with such frequent quotations as to make or credit derivative, may be excluded from the total
e. Net Worth shall mean the total of the unimpaired their prices easily and definitely ascertainable, or credit commitment of the bank to a borrower in
paid-in capital including paid-in surplus, retained which lend themselves easily to disposal by sale at any reckoning compliance with the single borrower’s limit.
earnings and undivided profit, net of valuation time to pay the obligations secured by the said goods.
reserves and other adjustments as may be required by
Subsection X303.4 Exclusions from Loan Limit.
the Bangko Sentral.
k. Bill of exchange drawn in good faith against
actually existing values shall mean one which is drawn
a. The discount of bills of exchange drawn in good
f. Qualifying Capital shall mean capital as computed by a seller on the purchaser for the purchase price of
faith against actually existing values, and the discount
under Circular 280 dated March 29, 2001 or as commodities sold. A bill of exchange, whether drawn
of commercial or business paper which are actually
defined by the Monetary Board. against goods for exports or against goods to be sold
owned by the person, company, corporation or
locally, which is discounted or purchased by a bank is
association negotiating the same;
a bill drawn against existing values only when it is
g. The term “Control of Majority Interest” shall be
accompanied by shipping documents, warehouse
synonymous to “controlling interest” and exists when
receipts or other papers, securing title to the goods b. Credit accommodations to finance the importation
the parent owns directly or indirectly through
sold. However, bills of exchange drawn in good faith of rice and corn to the extent of one hundred percent
subsidiaries more than one half of the voting power of
against actually existing values as defined in this (100%) of the net worth of the bank concerned shall be
an enterprise unless, in exceptional circumstance, it
paragraph, which are past due or the maturities of excluded in determining the SBL prescribed herein,
can be clearly demonstrated that such ownership does
which have been extended, shall be considered as subject to the following conditions:
not constitute control. Control of majority interest
additional loans authorized under the second
may also exist even when the parent owns one half or
paragraph of this section and shall be subject to the
less of the voting power of an enterprise when there is: 1. The importation shall be made in pursuance of a
ten percent (10%) limitation provided therein.
national policy duly enunciated by the National
Government;
1. Power over more than one half of the voting rights
l. Commercial or business paper actually owned by
by virtue of an agreement with other investors; or
the person negotiating the same shall mean a paper
2. The importation shall have been approved by the
arising from an actual business transaction. A trade
National Economic Development Authority (NEDA);
2. Power to govern the financial and operating acceptance or promissory note actually owned by the
policies of the enterprise under a statute or an person negotiating the same is a commercial or a
agreement; or business paper. However, if a bill is drawn against an 3. The letter of credit shall specify that importation
agent or fictitious drawee, or if a promissory note is shall be made with certification from the National Food
executed by an agent or fictitious drawee, neither is a Authority (NFA), or the consular establishment of the
3. Power to appoint or remove the majority members
commercial or a business paper. Commercial or Philippine government at the source of any such
of the board of directors or equivalent governing body;
business papers actually owned and discounted by the shipment to the effect that the commodity being
or
person negotiating the same, which are past due or the imported is either rice or corn; and
maturity of which have been extended, shall be
4. Power to cast the majority votes at meetings of the considered as money borrowed and shall be subject to
4. The related bills of lading shall specify in addition
board of directors or equivalent governing body; or the limitation of twenty-five percent (25%) provided in
to the name of the importer concerned, that the NFA
the first paragraph of this Section.
shall be the consignee of the shipment.
5. Any other arrangement similar to any of the
above. Subsection X303.2 Rediscounted Papers Included in
c. The portion of loans and other credit
Loan Limit.
accommodations covered by the guarantee
of Industrial Guarantee and Loan Fund;
d. The total liabilities of a commercial paper issuer 1. Fine of One Thousand Pesos (P1,000.00) for
for commercial paper held by a Universal Bank (UB) as directors/officers who approved the credit availment
a firm underwriter shall not be counted in determining which resulted in the excess.
compliance with the SBL within a period of one
hundred eighty (180) days from the acquisition of the
2. Suspension of the bank’s branching privileges and
commercial paper by the UB: Provided, That in no
access to Bangko Sentral rediscounting facilities until
case shall such liabilities exceed five percent (5%) of
the excess is eliminated.
the net worth of the UB beyond the normal applicable
SBL;
3. Other penalties as the Monetary Board may
impose depending on the gravity of the offense.
e. The portion of loans and other credit
accommodations covered by guarantees of
international/regional institutions/multi-lateral SECTION 2. Subsection X347.2 of the MOR is hereby
financial institutions where the Philippine Government amended to read as follows:
is a member/shareholder, such as the International
Finance Corporation and the Asian Development
Subsection X347.2. Ceiling. The total guarantees or
Bank.;
similar arrangements, the nature of which requires the
guarantor to assume the liabilities/obligations of third
f. Loans and other credit accommodations parties in case of their inability to pay, that may be
or portion thereof, specifically provided for with issued by a bank and outstanding at any given time,
valuation reserves; provided, that the bank has no shall not exceed One Hundred Percent (100%) of the
unbooked valuation reserves; bank’s qualifying capital.

g. Loans and other credit accommodations as a result SECTION 3. Transitory Provision

of an underwriting or sub-underwriting agreement of
debt securities outstanding for a period not exceeding
Outstanding credit commitments of a bank as of the
thirty (30) calendar days.
effectivity of this circular which are within the ceiling
prescribed under current regulations but will exceed
Subsection X303.5 Sanctions. the limitations prescribed herein shall not be subject
to penalty for a period of one (1) year or until said
credit commitments become past due or are extended,
Violations of the provisions of the foregoing rules shall
renewed or restructured whichever comes later: Said
be subject to the following:
credit commitments shall, however, be reported to the
Bangko Sentral within fifteen (15) banking days from
a. Monetary Penalties - Fines of one-tenth of one the effectivity of this circular.
percent (1/10 of 1%) of the excess over the ceiling but
not to exceed Thirty Thousand Pesos (P30,000.00) a
SECTION 4. Repealing Clause This Circular
day for each SBL violation shall be assessed on the
supersedes/amends/modifies provisions of existing
bank to be reckoned from the date the excess started
circulars, memoranda and/or regulations that are
up to the date when such excess was eliminated:
inconsistent herewith.
Provided, That a maximum fine of Five Hundred Pesos
(P500.00) a day for each violation shall be imposed
against banks with total resources of less than P50 SECTION 5. Effectivity
million at the time of granting of loan/credit
accommodation.
This Circular shall take effect fifteen (15) days
following its publication in a national newspaper of
b. Other Sanctions general circulation.

First Offense – Reprimand for the directors/officers

who approved the credit availment which resulted in
the excess with a warning that subsequent violations
will be subject to more severe sanctions.

Subsequent Offenses –