MORNBFI Vol. 1 - Planters Development Bank

APP. Q-28-a08.12.31ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETSTO SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALSFOR HOUSING UNDER “THE SPECIAL PURPOSE VEHICLEACT OF 2002”[Appendix to Sec. 4394Q.10 (2008 - 4396Q)]General PrinciplesThese guidelines set out alternativeregulatory accounting treatment of the saleof NPAs by banks and other FIs under BSPsupervision to SPVs and to qualifiedindividuals for housing underR.A. No. 9182, otherwise known as “TheSpecial Purpose Vehicle Act of 2002”.The guidelines recognize that banks/FIs may need temporary regulatoryrelief, in addition to tax relief under theSPV Law, particularly in the timing ofrecognition of losses, so that they maybe encouraged to maximize the sale oftheir NPAs even at substantial discounts:Provided, however, That in the interestof upholding full transparency andsustaining market discipline, banks/FIsthat avail of such regulatory relief shallfully disclose its impact in all relevantfinancial reports.The guidelines cover the followingareas:(1) Derecognition of NPAs sold/transferred to an SPV and initial recognitionof financial instruments issued by the SPVto the selling bank/FI as partial or fullsettlement of the NPAs sold/transferred tothe SPV;(2) Subsequent measurement of thecarrying amount of financial instrumentsissued by the SPV to the selling bank/FI;(3) Capital adequacy ratio (CAR)calculation; and(4) Disclosure requirement on theselling bank/FI.The sale/transfer of NPAs to SPVreferred to in these guidelines shall be inthe nature of a “true sale” pursuant toSection 13 of the SPV Law and itsImplementing Rules and Regulations.I. Derecognition of NPAs Sold and InitialRecognition of Financial InstrumentsReceivedA bank/FI should derecognize an NPAin accordance with the provisions ofPAS 39 (for financial assets such as loansand securities) and PAS 16 and 40 (for nonfinancialassets such as land, building andequipment).A sale of NPA qualifying as a true salepursuant to Section 13 of the SPV Lawand its Implementing Rules andRegulations but not qualifying forderecognition under PASs 39, 16 and 40may nonetheless, be derecognized.Provided: That the bank/FI shall disclosesuch fact, in addition to all otherdisclosures provided in this Appendix.On derecognition, any excess of thecarrying amount of the NPA (i.e., net ofspecific allowance for probable losses afterbooking the BSP recommended valuationreserve) over the proceeds received in theform of cash and/or financial instrumentsissued by the SPV represents an actual lossthat should be charged to current period’soperations.However, a bank/FI may use anyexisting specific allowance for probablelosses on NPA sold:(1) to cover any unbooked (specific/general) allowance for probable losses; and(2) to apply the excess, if any, asadditional (specific/general) allowance forprobable losses, on remaining assets, inwhich case the carrying amount of the NPAManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-28-a - Page 1