MORNBFI Vol. 1 - Planters Development Bank

APP. Q-2011.12.31major disposition: Provided, further, Thatprior BSP approval is required for sales ortransfers occurring after the prescribed six(6)-month time frame. In this case, FIs shallsubmit to the appropriate department of theSES, a plan stating the reason for theextension and the proposed schedule for thedisposition of the HTM security.(iv) A change in statutory or regulatoryrequirements significantly modifying eitherwhat constitutes a permissible investmentor the maximum level of particular types ofinvestments, thereby causing an FI todispose of an HTM security;(v) A significant increase in theindustry’s regulatory capital requirementsthat causes the FI to downsize by sellingHTM securities; or(vi) A significant increase in the riskweights of HTM securities used forregulatory risk-based capital purposes.An FI does not have a demonstratedability to hold to maturity an investment inHTM security if:(aa) it does not have the financialresources available to continue to financethe investment until maturity; or(bb)it is subject to an existing legal orother constraint that could frustrate itsintention to hold the security to maturity.Sales before maturity due to events thatare non-recurring and could not have beenreasonably anticipated by the FI such as arun on a bank, likewise satisfy the conditionof HTM classification and therefore neednot raise a question about the FI’s intentionand ability to hold other HTM investmentsto maturity.An FI assesses its intention and abilityto hold its investment in HTM securities tomaturity not only when those securities areinitially recognized, but also at each timethat the FI prepares its financial statements.a.2. HTM securities shall be measuredupon initial recognition at their fair valueplus transaction costs that are directlyattributable to the acquisition of thesecurities.For this purpose, transactions costsinclude fees and commissions paid to agents(including employees acting as sellingagents), advisers, brokers and dealers, leviesby regulatory agencies and securitiesexchanges, and transfer taxes and duties.Transaction costs do not include debtpremiums or discounts, financing costs orinternal administrative or holding costs.After initial recognition, an FI shallmeasure HTM securities at their amortizedcost using the effective interest method.For this purpose, the effective interestmethod is a method of calculating theamortized cost of a security (or group ofsecurities) and of allocating the interestincome over the relevant period using theeffective interest rate. The effective interestrate shall refer to the rate that exactlydiscounts the estimated future cash receiptsthrough the expected life of the security orwhen appropriate, a shorter period to thenet carrying amount of the security. Whencalculating the effective interest rate, an FIshall estimate cash flows considering allcontractual terms of the security (forexample, prepayment, call and similaroptions) but shall not consider future creditlosses. The calculation includes all fees andpoints paid to the other party to the contractthat are an integral part of the effectiveinterest rate, transaction costs, and all otherpremiums or discounts. There is apresumption that the cash flows and theexpected life of a group of similar securitiescan be estimated reliably. However, in thoserare cases when it is not possible to estimatereliably the cash flows or the expected lifeof a security (or group of securities), the FIshall use the contractual cash flows over thefull contractual terms of the security.A gain or loss arising from the changeManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-20 - Page 3