MORNBFI Vol. 1 - Planters Development Bank

CLASSIFICATION, ACCOUNTING PROCEDURES, VALUATION ANDSALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIESAND MARKETABLE EQUITY SECURITIES[Appendix to Subsec. 4388Q.5 (2008 - 4391Q.3)]APP. Q-2011.12.31Section 1. Statement of Policy. It is thepolicy of the BSP to promote fulltransparency of the financial statements ofbanks and other supervised institutions inorder to strengthen market discipline,encourage sound risk managementpractices, and stimulate the domestic capitalmarket. Towards these ends, the BSPdesires to align local financial accountingstandards with international accountingstandards as prescribed by the InternationalAccounting Standards Board (IASB) to thegreatest extent possible.Sec. 2. Scope. This Appendix coversaccounting for investments in debt andequity securities except:a. those that are part of hedgingrelationship;b. those that are hybrid financialinstruments;c. those financial liabilities that areheld for trading;d. those financial assets and financialliabilities which, upon initial recognition,are designated by the FIs as at fair valuethrough profit or loss; ande. those that are classified as loans andreceivables.It also does not include accounting forderivatives and non-derivative financialinstruments other than debt and equitysecurities. The foregoing exceptions andexclusions shall be covered by separateregulations.Sec. 3. Investments in Debt and EquitySecurities. Depending on the intent,investments in debt and equity securitiesshall be classified into one (1) of four (4)categories and accounted for as follows 1 :a. Held to Maturity (HTM) Securities- These are debt securities with fixed ordeterminable payments and fixed maturitythat an FI has the positive intention andability to hold to maturity other than:(1) those that meet the definition ofSecurities at Fair Value Through Profit orLoss; and(2) those that the FI designates as ASS.An FI shall not classify any debt securityas HTM if the FI has, during the currentfinancial year or during the two (2)preceding financial years, sold orreclassified more than an insignificantamount of HTM investments before maturity(more than insignificant in relation to thetotal amount of HTM investments) otherthan sales or reclassifications that:(a) are so close to maturity or thesecurity’s call date (i.e., less than three (3)months before maturity) that changes inthe market rate of interest would not havea significant effect on the security’s fairvalue;(b) occur after the FI has substantiallycollected all [i.e., at least eighty-five percent(85%)] of the security’s original principalthrough scheduled payments orprepayments; or(c) are attributable to an isolated eventthat is beyond the FI’s control, isnon-recurring and could not have beenreasonably anticipated by the FI.For this purpose, the phrase “more thanan insignificant amount” refers to sales orreclassification of one percent (1%) or moreof the outstanding balance of the HTMportfolio: Provided, however, That sales orreclassifications of less than one percent1Reclassification allowed until 30 November 2005 as per MAB dated 23 November 2005Manual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-20 - Page 1