MORNBFI Vol. 1 - Planters Development Bank

APP. Q-28-a08.12.31(which is compared with the proceedsreceived for purposes of determining theactual loss) shall be the gross amount of theNPA: Provided, That the use of such existingspecific allowance for probable losses on theNPA sold as provisions against remainingassets shall be properly disclosed.The loss may, moreover, be bookedunder “Deferred Charges” account whichshould be written down over the next ten(10) years based on the followingschedule:End of Period CumulativeFrom Date of Write-down ofTransaction Deferred ChargesYear 1 5%Year 2 10%Year 3 15%Year 4 25%Year 5 35%Year 6 45%Year 7 55%Year 8 70%Year 9 85%Year 10 100%Provided, That the staggered bookingof actual loss on sale/transfer of the NPAshall be properly disclosed.In case the face amounts of thefinancial instruments exceed the excess ofthe carrying amount of the NPA over thecash proceeds, the same shall be adjustedby setting up specific allowance forprobable losses so that no gain shall berecognized from the transaction.The carrying amount of the NPA shallbe initially assumed to be the NPA’s fairvalue. The excess of the carrying amountof the NPA over the cash proceeds or theface amounts of the financial instruments,whichever is lower, shall then be the initialcost of financial instruments received.Banks/FIs shall book such financialinstruments under the general ledgeraccount “Unquoted Debt SecuritiesClassified as Loans” for debt instrumentsor “Investments in Non-Marketable EquitySecurities” for equity instruments.Consolidation of SPV with Bank/FI. Evenif the sale of NPAs to SPVs qualifies forderecognition, a bank/FI shall consolidatethe SPV in the audited consolidatedfinancial statements when the relationshipbetween the bank/FI and the SPV indicatesthat the SPV is controlled by the bank/FI inaccordance with the provisions of SIC(Standing Interpretations Committee) -12Consolidation - Special Purpose Entities.II. Subsequent Measurement of FinancialInstruments Received(a) A bank/FI should assess at end of eachfiscal year or more frequently whether thereis any objective evidence or indication basedon analysis of expected net cash inflows thatthe carrying amount of financial instrumentsissued by an SPV may be impaired. Afinancial instrument is impaired if its carryingamount (i.e., net of specific allowance forprobable loss) is greater than its estimatedrecoverable amount. The estimatedrecoverable amount is determined based onthe net present value of expected future cashflows discounted at the current market rateof interest for a similar financial instrument.In applying discounted cash flowanalysis, a bank/FI should use the discountrate(s) equal to the prevailing rate of returnfor financial instruments having substantiallythe same terms and characteristics, includingthe creditworthiness of the issuer.(b) Alternatively, the estimatedrecoverable amount of the financialinstruments may be determined based onan updated estimate of residual NPV of theissuing SPV.Q RegulationsAppendix Q-28-a - Page 2Manual of Regulations for Non-Bank Financial Institutions