MORNBFI Vol. 1 - Planters Development Bank

APP. Q-2011.12.31(1%) shall be evaluated on case-to-casebasis.Sales or reclassifications before maturitythat do not meet any of the conditionsprescribed in this Appendix shall require theentire HTM portfolio to be reclassified toASS. Further, the FI shall be prohibited fromusing the HTM account during the reportingyear of the date of sales or reclassificationsand for the succeeding two (2) full financialyears. Failure to reclassify the HTM portfolioto ASS on the date of sales orreclassifications, shall subject the FI andconcerned officers to penalties and sanctionsprovided under 4388Q.5. This provisionshall be applied prospectively, i.e., onprohibited sales or reclassificationsoccurring from 13 March 2005 (effectivitydate of Circular No. 476 dated 16 February2005) and thereafter.Securities held in compliance with BSPregulations, e.g., securities held as liquidityreserves and for the faithful performance oftrust duties, may be classified either as HTM,Securities Held for Trading (HFT) or ASS:Provided, That the provision of Item (4) ofparagraph 2 of Section 3.a.1 shall not applyto sales or reclassifications of the saidsecurities booked under HTM.a.1.Positive intention and ability to holdinvestments in HTM securities to maturity -An FI does not have a positive intention tohold to maturity an HTM security if:(a) the FI intends to hold the securityfor an undefined period;(b) the FI stands ready to sell thesecurity (other than if a situation arises thatis non-recurring and could not have beenreasonably anticipated by the FI) in responseto changes in market interest rates or risks,liquidity needs, changes in the availabilityof and the yield on alternative investments,changes in financing sources and terms orchanges in foreign currency risk; or(c) the issuer has a right to settle thesecurity at an amount significantly belowits amortized cost.Sales before maturity could satisfy thecondition of HTM classification andtherefore need not raise a question aboutthe FI’s intention to hold other HTMsecurities to maturity if they are attributableto any of the following:(i) A significant deterioration in theissuer’s creditworthiness; for example, a salefollowing a downgrade in a credit rating byan external rating agency would notnecessarily raise a question about the FI’sintention to hold other investments tomaturity if the downgrade provides evidenceof a significant deterioration in the issuer’screditworthiness judged by reference to thecredit rating at initial recognition. Similarly,if an FI uses internal ratings for assessingexposures, changes in those internal ratingsmay help to identify issuers for which therehas been a significant deterioration increditworthiness, provided the FI’sapproach to assigning internal ratings andchanges in those ratings give a consistent,reliable and objective measure of the creditquality of the issuers. If there is evidencethat an instrument is impaired, thedeterioration in creditworthiness is oftenregarded as significant.(ii) A change in tax law that eliminatesor significantly reduces the tax-exemptstatus of interest on the HTM security (butnot a change in tax law that revises themarginal tax rates applicable to interestincome);(iii) A major business combination ormajor disposition (such as sale of a segment)that necessitates the sale or transfer of HTMsecurities to maintain the FI’s existinginterest rate risk position or credit riskpolicy: Provided, That the sale or transferof HTM security shall be done only onceand within a period of six (6) months fromthe date of the business combination orQ RegulationsAppendix Q-20 - Page 2Manual of Regulations for Non-Bank Financial Institutions