MORNBFI Vol. 1 - Planters Development Bank

APP. Q-28-a08.12.31The estimated recoverable amount ofthe financial instrument shall be the presentvalue of the excess of expected cash inflows(e.g., proceeds from the sale of collateralsand/or ROPAs, which in no case shallexceed the contract price of the NPAs sold/transferred, interest on the reinvestment ofproceeds) over expected cash outflows (e.g.,direct costs to sell, administrative expenses,principal and interest payments on seniorobligations, interest payments on thefinancial instruments).The fair market value of the collateraland/or ROPAs should under this methodbe considered only under the followingconditions:(1) The appraisal was performed by anindependent appraiser acceptable to theBSP; and(2) The valuation of the independentappraiser is based on current marketvaluation of similar assets in the samelocality as underlying collateral rather thanother valuation methods such asreplacement cost, etc.The assumptions regarding the timingof sale, the direct cost to sell, administrativeexpenses, reinvestments rate and currentmarket rate should be disclosed in sufficientdetail in the audited financial statements.The applicable discount rate should bebased on the implied stripped yield of theTreasury note or bond for the tenor plusan appropriate risk premium.(c) In case of impairment, thecarrying amount of the financialinstrument should be reduced to itsestimated recoverable amount, throughthe use of specific allowance for probablelosses account that should be charged tocurrent period’s operations. However, atthe end of the fiscal year the sale/transferof NPA occurred, such setting up ofspecific allowance for probable lossesaccount may be booked on a staggeredbasis over the next ten (10) years basedon the following schedule:End of PeriodFrom Date ofTransactionCumulative Bookingof Allowance forProbable LossesYear 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 impairment, if any, upon remeasurementof financial instruments at end of the fiscalyear the sale/transfer of the NPA occurredshall be properly disclosed.After initially recognizing animpairment loss, the bank/FI should reviewthe financial instruments for futureimpairment in subsequent financialreporting date.If in a subsequent period, the estimatedrecoverable amount of the financialinstrument decreases, the bank/FI shouldimmediately book additional allowance forprobable losses corresponding to thedecrease. However, a bank/FI may staggerthe booking of such additional allowancefor probable losses in such a way that itcatches up and keeps pace with theoriginal deferral schedule (e.g., if theimpairment occurred in Year 8, a bank/FIshould immediately book 70 percent (70%)at end of Year 8, and thereafter, additional15 percent (15%) each at end of Year 9and Year 10, respectively): Provided, Thatthe staggered booking of impairment, ifany, upon remeasurement of financialinstruments shall be properly disclosed.If in a subsequent period, theestimated recoverable amount of thefinancial instrument increases exceedingits carrying amount, and the increase canManual of Regulations for Non-Bank Financial InstitutionsQ RegulationsAppendix Q-28-a - Page 3