BSP eases rules on banks' foreign borrowings

Banks are now allowed to borrow from foreign creditors without prior approval but prepayment of foreign loans by private companies would require clearance from the Bangko Sentral ng Pilipinas (BSP).

The BSP issued new regulations yesterday that liberalized its rules on the foreign borrowing of banks, the registration of foreign portfolio investments and other rules on foreign exchange flows.

BSP Governor Amando M. Tetangco Jr. announced yesterday that the new rules formed the third phase of changes and reforms in the central bank’s Manual of Regulations on Foreign Exchange Transactions.

According to Tetangco, the Monetary Board approved the lifting of the rule that required prior BSP approval for foreign loans by private banks with maturities longer than one year.

If the borrowing is intended for relending, Tetangco said the BSP need not approve. He said the BSP would still require the registration of short-term foreign loans by private banks but they now had 10 days to register instead of only three.

On the other hand, Tetangco said medium and long-term loans would still be registered within three months of the utilization of the loan proceeds.

Tetangco said the BSP also expanded the list of projects and costs that would be eligible for financing with foreign borrowing to include the acquisition of government assets approved for privatization and the refinancing of existing loans used for eligible projects and expenses.

Significantly, the BSP also classified the acquisition of non-performing assets and non-performing loans of banks and government financial institutions as eligible for financing with foreign borrowing.

In the same issuance, Tetangco said the BSP likewise liberalized and streamlined its rules on foreign exchange investments. He said the BSP decided to delegate to custodian banks the registration of inward foreign investments in peso government securities and peso time deposits with tenor of at least 90 days.

On the other hand, the BSP has discontinued the submission of report on sale of foreign exchange by banks intended for investments overseas.

Tetangco said the BSP also shorted the time that foreign investments could be sold for pesos from 10 days to only seven days from the receipt of the funds abroad. But he said reinvestments of dividends and profits would now be allowed without requiring corporations to remit the amount as long as the transaction is completed within two days that the funds are received.

The third wave of reforms, according to the BSP, also include changes intended to improve its monitoring of foreign exchange flows as well as to formalize existing practice.

Firstly, Tetangco said the BSP would now require prior approval for all prepayment of foreign loans by private non-bank borrowers that would use foreign exchange bought from banks or forex corporations.

Tetangco said the BSP would also begin requiring private corporations to submit annual borrowing plans for medium and long-term loans. He said these entities, however, need not report plans for their short-term loans.

On the other hand, Tetangco warned private companies that loans that do require prior BSP approval should be approved before they could sign loan agreements or draw down the proceeds.