MORNBFI Vol. 1 - Planters Development Bank

APP. Q-4611.12.31guarantee to be recognized, the followingconditions must be satisfied:a) On the qualifying default/non-payment of the counterparty, the bankmay in a timely manner pursue the guarantorfor any monies outstanding under thedocumentation governing the transaction.The guarantor may make one lump sumpayment of all monies under suchdocumentation to the bank, or the guarantormay assume the future payment obligationsof the counterparty covered by theguarantee. The bank must have the right toreceive any such payments from theguarantor without first having to take legalactions in order to pursue the counterpartyfor payment;b) The guarantee is an explicitlydocumented obligation assumed by theguarantor; andc) The guarantee must cover all typesof payments the underlying obligor isexpected to make under the documentationgoverning the transaction, for example,notional amount, margin payments, etc.Where a guarantee covers payment ofprincipal only, interests and other uncoveredpayments should be treated as an unsecuredamount.45. Where the bank’s exposure isguaranteed by an eligible guarantor, as listedin paragraph 47, and satisfies therequirements under paragraphs 42 to 44, thebank is allowed to apply the risk weight ofthe guarantor to the guaranteed portion ofthe credit exposure.46. The treatment of transactions wherethere is a mismatch between the maturityof the counterparty exposure and theguarantee is given in paragraphs 50 to 54.47. The following are the eligibleguarantors:a) Philippine NG and the BSP;b) Central governments and centralbanks and PSEs of foreign countries as wellas MDBs with a lower risk weight than thecounterparty;c) Banks with a lower risk weight thanthe counterparty; andd) Other entities with external creditassessment of at least A- or its equivalent.48. Where a bank provides a creditprotection to another bank in the form of aguarantee that a third party will perform onits obligations, the risk to the guarantor bankis the same as if the bank had entered intothe transaction as a principal. In suchcircumstances, the guarantor bank will berequired to calculate capital requirement onthe guaranteed amount according to the riskweight corresponding to the third partyexposure. In this instance, and provided thecredit protection is deemed to be legallyeffective, the credit risk is consideredtransferred to the bank providing creditprotection. However, the bank receivingcredit protection on its exposure to a thirdparty shall recognize a corresponding riskweightedcredit exposure to the bankproviding credit protection.49. An exposure that is covered by aguarantee that is counter-guaranteed by thePhilippine NG or BSP, may be consideredas covered by the guarantee of thePhilippine NG or BSP: Provided, That:a) the counter-guarantee covers allcredit risk element of the exposure;b) both the original guarantee and thecounter-guarantee meet all operationalrequirements for guarantees, except that thecounter guarantee need not be direct andexplicit to the original exposure; andc) the cover is robust and that nohistorical evidence suggests that thecoverage of the counter-guarantee is lessthan effectively equivalent to that of a directguarantee of the Philippine NG and BSP.Currently, Php-denominated exposuresto the extent guaranteed by IndustrialGuarantee and Loan Fund (IGLF), HomeQ RegulationsAppendix Q-46 - Page 18Manual of Regulations for Non-Bank Financial Institutions