Chapter

PHILIPPINES

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2004
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(Position as of February 29, 2004)
Status Under IMF Articles of Agreement
Article VIIIDate of acceptance: September 8, 1995.
Exchange Arrangement
CurrencyThe currency of the Philippines is the Philippine peso.
Exchange rate structureUnitary.
Classification
Independently floatingExchange rates are determined on the basis of supply and demand in the foreign exchange market. However, the Bangko Sentral ng Pilipinas (BSP) acts to limit sharp fluctuations in the exchange rate and intervenes when necessary to maintain orderly conditions in the exchange market. Commercial banks trade in foreign exchange through the Philippine Dealing System (PDS), an electronic screen-based network. The PDS allows trading between 9:00 a.m. and 4:00 p.m. daily between Bankers Association of the Philippines member banks and the BSP. The system allows participants to electronically share information and transact business. The exchange rate of the peso vis-à-vis the dollar at the beginning of the trading day represents the weighted average of all transactions in the PDS during the preceding day. The amount of foreign exchange that may be sold over the counter without documentation and prior BSP approval is the equivalent of US$5,000.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketAll forward purchases, contracts, and sales with no full delivery of principal involving nonresidents (including offshore banking units) require BSP approval. Only banks with an expanded derivatives license may enter into transactions covered by nondeliverable forward contracts. This policy is subject to quarterly review by the BSP.
The BSP authorizes the rollover, without prior approval, of short-term deliverable forward contracts with nonresidents at every maturity during the course of the underlying long-term Philippine government securities, provided that (1) the underlying transactions for each short-term deliverable foreign exchange forward contract are BSP-registered foreign investments in government securities; (2) the actual delivery or settlement of the forward contract coincides with the date of the repatriation of the BSP-registered investments; (3) the value of the forward contract does not exceed the foreign currency equivalent of the maturity value or net proceeds of the BSP-registered investments computed on the basis of the agreed forward exchange rate; (4) the repatriation and remittance out of the country of the BSP-registered investments comply with the documentary requirements under existing BSP rules; and (5) the bank concerned submits to the BSP a weekly report on forward contracts with nonresidents.
Effective March 13, 2003, the maturity of all forward contracts—i.e., outright forward and forward swap contracts to cover long-term foreign currency requirements—may not exceed six months.
Effective September 30, 2003, the maturity of foreign exchange forwards and swaps must not be longer than (1) the maturity of the underlying foreign exchange obligation; or (2) the approximate due date or settlement of the foreign exchange exposure. However, for foreign currency loans, the maturity of deliverable foreign exchange forwards must be coterminous with the maturity of the underlying obligation.
Official cover of forward operationsYes.
Arrangements for Payments and Receipts
Prescription of currency requirementsThere is no prescription of currency requirements for outgoing payments or incoming receipts. However, only the following currencies are currently acceptable to the BSP as part of the country’s international reserves: Australian dollars, Bahrain dinars, Brunei dollars, Canadian dollars, euros, Hong Kong dollars, Indonesian rupiahs, Kuwaiti dinars, Malaysian ringgits, pounds sterling, Saudi Arabian riyals, Singapore dollars, Swiss francs, Thai baht, U.A.E. dirhams, U.S. dollars, yen, and other such currencies that may be declared acceptable by the BSP.
Controls on the use of domestic currencyThe use of domestic currency for international payments and receipts is not allowed, except for imports from and exports to ASEAN countries.
For current transactions and paymentsYes.
For capital transactions
Transactions in capital and money market instrumentsYes.
Transactions in derivatives and other instrumentsYes.
Credit operationsYes.
Use of foreign exchange among residentsThere are no restrictions, provided that the transaction does not involve the purchase of foreign exchange from the domestic banking system.
Payments arrangements
Bilateral payments arrangements
OperativeA bilateral payments agreement with Bank Negara Malaysia (BNM) has been in force since July 11, 1998. The agreement was originally concluded for one year and has been extended indefinitely. Commercial banks accredited by the BSP are the authorized channels for transactions within the framework of the agreement, and settlements take place through the BSP or the BNM on a net basis over a two-month period.
Regional arrangementsThe Philippines is a member of the ASEAN.
Administration of controlForeign exchange regulations are administered by the BSP on the basis of policy decisions adopted by the Monetary Board of the BSP.
International security restrictionsNo.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)
Controls on domestic ownership and/or tradeSmall-scale miners are required to sell all of their production to the BSP. All forms or types of gold may be bought and sold without specific approval of the BSP. Effective February 26, 2004, producers selling gold to the BSP are paid in pesos on the basis of the average of live gold and silver prices quoted simultaneously between 8:00 a.m. and 8:30 a.m. by the London Bullion Market Association market-making members, excluding the highest and lowest quotes and rounding to the nearest US$0.05. Gold acquired in this way is deemed to be part of the official international reserves. The BSP may sell gold dust, pellets, bars, and sheets to local jewelry manufacturers and other industrial users upon application, or to banks only for resale to jewelry manufacturers and industrial users, at the BSP’s gold-selling price plus a service fee to cover costs, including the costs of conversion and packaging.
Controls on external tradeThere are no restrictions on the importation of any form of gold except gold coin blanks and gold bullion lacking indication of the actual fineness of the gold content; the importation of gold blanks requires prior BSP clearance, and the importation of such gold bullion is prohibited. All forms of gold may be exported without BSP approval except gold from small-scale mining, which is required to be sold to the BSP.
Controls on exports and imports of banknotes
On exports
Domestic currencyResident and nonresident travelers must obtain prior authorization from the BSP to take out more than P=10,000 in domestic banknotes and coins or checks, money orders, and other bills of exchange denominated in pesos.
Foreign currencyA written declaration of the amount, source, and purpose of the foreign currency exported is required to be submitted to the Bureau of Customs at the exit point only if the amount exceeds US$10,000 or its equivalent.
On imports
Domestic currencyTravelers may bring in freely up to P=10,000 in domestic banknotes and coins, checks, money orders, and other bills of exchange denominated in pesos. Imports exceeding this amount require prior authorization from the BSP.
Foreign currencyA written declaration of the amount, source, and purpose of the foreign currency imported is required to be submitted to the Bureau of Customs at the exit point only if the amount exceeds US$10,000 or its equivalent.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadYes.
Accounts in domestic currency held abroadn.a.
Accounts in domestic currency convertible into foreign currencyNo.
Nonresident Accounts
Foreign exchange accounts permittedYes.
Domestic currency accountsNonresident peso deposit accounts are allowed, provided they are funded by inward remittances of foreign currency or by peso income from nonresidents’ properties located in the Philippines, whether real or personal, or proceeds from the conversion thereof.
Convertible into foreign currencyBalances are convertible only if these pertain to (1) deposits by tourists or “balikbayans” up to the amount of the peso conversion proceeds of foreign currency brought in and sold to the domestic banking system; and (2) peso proceeds of the divestment of BSP-registered inward foreign investments and accumulated earnings thereon. Nonresident bank peso accounts may be registered with the BSP only if they are in the form of time deposits with a minimum maturity of 90 days. The BSP registration document, which is issued directly by the BSP for such investments, will be canceled if the investments are terminated before the end of the 90-day period. Tourists or “balikbayans” may reconvert at airports or other ports of exit unspent pesos of up to a maximum of US$200 or an equivalent amount in any other foreign currency without having to show proof of previous sale of foreign exchange to the banking system.
Blocked accountsNo.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for importsNo.
Documentation requirements for release of foreign exchange for importsGenerally, commercial banks may sell foreign exchange for import payments in any mode of payment upon presentation of original shipping documents (commercial invoices or bills of lading) except for imports under documents against acceptance (DA) and open account (OA) arrangements, which require proof that the imports have been reported to the BSP. Effective February 16, 2004, the requirement for BSP registration of DA and OA imports was replaced by a reporting requirement to the BSP.
Letters of creditLCs must be opened on or before the date of shipment, with a validity period of up to one year. Only one LC may be opened for each import transaction; amendments to such an arrangement need not be referred to the BSP for prior approval except when the amendment extends the total validity of the LC beyond one year.
Import licenses and other nontariff measuresGenerally, all merchandise imports are allowed without a license, and without restrictions, unless otherwise prohibited by laws, rules, or regulations.
Positive listYes.
Negative listThe importation of certain products is regulated or prohibited for reasons of public health and safety, environmental considerations, national security, international commitments, and development and rationalization of local industries.
Open general licensesCommodity imports are classified into three categories: freely importable, regulated, and prohibited. To import regulated products, a clearance or permit is required from the appropriate government regulatory agency.
Licenses with quotasQuantitative restrictions are imposed on the imports of rice.
Import taxes and/or tariffsThe tariff structure clusters around five tariff rates: 1%, 3%, 7%, 10%, and 15%. The number of tariff lines dutiable at these rates accounts for over four-fifths of the total tariff lines. The Philippines is a party to the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area.
State import monopolyNo.
Exports and Export Proceeds
Repatriation requirementsNo.
Financing requirementsNo.
Documentation requirementsAll exports must be covered by an export declaration, which may be obtained from the Bureau of Customs or the Department of Trade and Industry.
Export licensesA few export items are regulated for reasons of health, security, national interest, or environmental protection; such exports require prior clearance from the appropriate government regulatory agency.
Without quotasYes.
Export taxesNo.
Payments for Invisible Transactions and Current Transfers
Controls on these transfersThe amount of foreign exchange a bank may sell to a resident for any nontrade purpose, without documentation, is US$5,000 or its equivalent for each application. For sales in excess of this amount, a resident must submit a notarized application with the prescribed supporting documents. This rule also applies to sales to residents by bank-affiliated foreign exchange trading corporations.
Investment-related paymentsInvestment-related payments, i.e., capital repatriation and remittance of profits, may be serviced using foreign exchange purchased from the domestic banking system only if they pertain to BSP-registered foreign investments.
Prior approvalPrior approval is not required for payments pertaining to BSP-registered foreign investments.
Quantitative limitsThe Monetary Board of the BSP sets the ceiling for approvals of commercial medium- and long-term foreign loans to the public sector, as well as those to the private sector that are publicly guaranteed or intended to be serviced with foreign exchange purchased from the domestic banking system. The Monetary Board also sets a limit on the stock of short-term public sector debt.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
Capital Transactions
Controls on capital transactionsOnly foreign loans and foreign investments registered with the BSP can be serviced using foreign exchange purchased from the domestic banking system (i.e., authorized agent banks and bank-affiliated foreign exchange trading corporations).
Controls on capital and money market instrumentsPursuant to the Philippines Constitution, all public and private sector publicly guaranteed obligations from foreign creditors, including offshore banking units (OBUs) and foreign currency deposit units (FCDUs), shall be referred to the BSP for prior approval and subsequent registration. Other private sector loans from foreign creditors and other financing schemes or arrangements require prior approval and/or registration by the BSP if they are covered by any guarantee from local banks or are intended to be serviced using foreign exchange purchased from the domestic banking system. Foreign currency borrowings from FCDUs with a maturity exceeding one year are governed by the same guidelines. In the case of short-term FCDU loans, including those obtained by the private sector, no prior BSP approval is required, provided that the borrower or project qualifies for foreign financing. These short-term FCDU loans must, however, be reported by the creditor banks to the BSP to be eligible for servicing with foreign exchange purchased from the domestic banking system.
Effective February 24, 2003, OBUs may hold peso-denominated assets (i.e., bonds or other certificates of indebtedness, shares of stocks, and other properties) arising from restructuring or other repayment schemes of outstanding loans, subject to the terms and conditions of the approval of such schemes. Bonds or other certificates of indebtedness issued by a third party, as well as shares of stocks and other properties acquired as a result of these schemes, must be booked at their appraised value or the loan balance, whichever is lower. Shares of stocks and other properties acquired as a result of these schemes must be sold or disposed of within a period of five years from the acquisition date. Booking of bonds, other certificates of indebtedness, and shares of stock acquired must be adjusted in cases of decline in their market value, while other properties must be subject to regular provisioning within three years of the contract date.
Foreign investors must hold peso time deposits for a minimum of 90 days and register with the BSP to purchase foreign exchange from the domestic banking system for capital repatriation or outward remittance of earnings.
There is no minimum holding period for all other types of eligible investments. However, BSP registration of investments is required to purchase foreign exchange from the domestic banking system for the servicing of capital repatriation or outward remittance of earnings.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsRegistration with the BSP or a designated custodian bank is not mandatory. Registration is necessary only if the source of the foreign exchange needed for capital repatriation and remittance of dividends, profits, and earnings that accrue thereon will be purchased from the domestic banking system.
Sale or issue locally by nonresidentsThe shares or securities issued or sold by nonresidents are subject to the same Securities and Exchange Commission (SEC) approval and registration requirements imposed on those issued by local companies. Payment for such sale or issue should, however, not involve the purchase of foreign exchange from the domestic banking system.
Purchase abroad by residentsInvestments abroad by residents in excess of US$6 million for each investor each year require prior BSP approval and registration if the foreign exchange for such investments will be purchased from the domestic banking system. For smaller amounts, only supporting documents to identify the nature and place of the investments are required to be submitted to the foreign exchange selling bank.
Sale or issue abroad by residentsResident companies must comply with the disclosure requirements of the SEC. Registration with the BSP is needed if the capital repatriation and remittance of profits and dividends on such shares and securities will be serviced with foreign exchange purchased from the domestic banking system.
Bonds or other debt securities
Purchase locally by nonresidentsRegistration with the BSP of investments in peso-denominated bonds or other debt securities is necessary only if the foreign exchange needed for capital repatriation and remittance of dividends, profits, and earnings that accrue thereon will be purchased from the domestic banking system.
Sale or issue locally by nonresidentsThe shares and securities are subject to the same SEC approval and registration requirements imposed on those issued by local companies. Payment for such sale or issue should, however, not involve the purchase of foreign exchange from the domestic banking system. These transactions are allowed only after the proper approval or license to do business in the country is secured from the appropriate government agency, provided that payment for the sale or issue does not involve the purchase of foreign exchange from the domestic banking system.
Purchase abroad by residentsInvestments involving amounts above the equivalent of US$6 million for each investor each year funded by foreign exchange purchased from the domestic banking system require prior approval and registration with the BSP.
Sale or issue abroad by residentsPursuant to the Philippine Constitution, all public and private sector publicly guaranteed borrowing from foreign creditors, including from OBUs and FCDUs, shall be referred to the BSP for prior approval and subsequent registration. Private sector bond or note issues offshore require prior approval and/or registration by the BSP if they are covered by any guarantee from local banks or are intended to be serviced using foreign exchange purchased from the domestic banking system.
On money market instruments
Purchase locally by nonresidentsIf peso-denominated, these instruments are considered foreign investments and are subject to applicable rules.
Sale or issue locally by nonresidentsThe shares and securities are subject to the same SEC approval and registration requirements imposed on those issued by local companies. However, payment for such sale or issue should not involve the purchase of foreign exchange from the domestic banking system.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
On collective investment securities
Sale or issue locally by nonresidentsThe shares and securities are subject to the same SEC approval and registration requirements imposed on those sold or issued by local companies. Payment for such sale or issue must not involve the purchase of foreign exchange from the domestic banking system.
Purchase abroad by residentsYes.
Sale or issue abroad by residentsYes.
Controls on derivatives and other instrumentsBanks, nonbanks with quasi-banking functions, and their subsidiaries and affiliates duly authorized by the BSP may engage in financial derivatives activities with their customers when either party is hedging eligible actual foreign exchange obligations or existing foreign exchange exposures. Foreign exchange regulations and documentary requirements for derivatives apply.
Purchase locally by nonresidentsDerivatives involving forward purchases of foreign exchange by nonresidents are not allowed, except for BSP-registered foreign investments under certain conditions.
Sale or issue locally by nonresidentsSwap contracts involving the sale of foreign exchange by nonresidents to banks as a first leg require BSP approval.
Purchase abroad by residentsThe purchase of foreign exchange from local banks for settlement of derivatives is not permitted.
Sale or issue abroad by residentsThe purchase of foreign exchange from local banks for settlement of derivatives is not permitted.
Controls on credit operations
Commercial creditsPrior BSP approval and registration are required for foreign loans by residents when the loans are guaranteed by the public sector or local banks. Those that are not guaranteed but are to be serviced with foreign exchange purchased from the domestic banking system generally require prior BSP approval and subsequent registration.
To residents from nonresidentsRegardless of maturity, if these credits are to be serviced with the borrower’s own foreign exchange resources or from outside the banking system, they need not be approved or registered with the BSP unless guaranteed by government financial institutions or banks. The status of private sector loans, and the transactions concerned, must be reported to the BSP for statistical purposes.
Financial creditsLoans by nonresidents from expanded foreign currency deposit units (EFCDUs), irrespective of maturity, no longer require BSP approval, provided that (1) the loan is serviced using foreign exchange purchased outside the domestic banking system; and (2) all applicable banking rules and regulations are complied with, including the single borrower’s limit, which is defined to include lending and guarantees issued to companies, their subsidiaries, affiliates, and major stockholders all over the world.
By residents to nonresidentsThese transactions are not controlled if they do not involve foreign exchange purchased from the domestic banking system.
To residents from nonresidentsThe regulations governing commercial credits apply.
Guarantees, sureties, and financial backup facilities
By residents to nonresidentsGuarantees for public sector accounts and those issued by government-owned and -controlled corporations in favor of nonresidents as well as other guarantees or similar arrangements that may give rise to actual foreign obligations require prior BSP approval.
On the other hand, guarantees issued by local banks and financial institutions, including government financial institutions, that cover foreign obligations other than foreign loans must be registered to be eligible for servicing using foreign exchange purchased from the domestic banking system.
To residents from nonresidentsGuarantees issued by foreign banks and financial institutions with regard to foreign loans that require prior BSP approval also require prior BSP approval to allow servicing with banking system resources of any obligation arising from the guarantees.
On the other hand, guarantees issued by foreign banks and financial institutions and other foreign entities to secure peso loans or FCDU loans authorized under existing policy, as well as foreign obligations (which do not have the nature of a foreign loan) of local firms, must be registered with the BSP to allow servicing of any obligation arising from the guarantees using foreign exchange purchased from the banking system.
Controls on direct investment
Outward direct investmentPrior BSP approval and registration are required if the foreign exchange for the investment will be purchased from the domestic banking system.
Inward direct investmentInward investments need not be registered with the BSP if the capital repatriation or dividend or profit remittances will not involve the purchase of foreign exchange from the domestic banking system.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsYes.
Purchase locally by nonresidentsPurchases are subject to constitutional and legal limits.
Sale locally by nonresidentsThese sales are allowed, subject to legal and constitutional limits. If their proceeds are to be repatriated abroad using foreign exchange purchased from the domestic banking system, the transaction must be registered with the BSP as a foreign investment.
Controls on personal capital transactions
Loans
By residents to nonresidentsLoans are permitted, provided that foreign exchange is not purchased from the domestic banking system.
To residents from nonresidentsLoans are permitted, provided that the transaction is not serviced with foreign exchange purchased from the banking system.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsNo private land may be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold land in the public domain.
Transfer of gambling and prize earningsTransfers are subject to appropriate supporting documents.
Provisions specific to commercial banks and other credit institutionsBanks with foreign exchange trading corporations as subsidiaries or affiliates must make available on a daily basis the names of counterparties and other details of purchases and sales of foreign exchange.
Borrowing abroadBanks’ short-term interbank loans are not subject to prior BSP approval; however, medium- and long-term loans for relending require prior BSP approval and registration.
Lending to nonresidents (financial or commercial credits)Banks may grant commercial credit to nonresidents under any of the following modes of payment without prior BSP approval: (1) LCs, (2) direct payments or cash against payment, (3) DAs, (4) OAs, (5) intercompany open account offsets, (6) consignments, and (7) export advances. Commercial banks, which are authorized to operate under the expanded foreign currency deposit system, may grant foreign currency loans to nonresidents, irrespective of maturity, without prior approval by the BSP, provided that the loan is serviced using foreign exchange purchased from outside the domestic banking system, and all applicable banking rules and regulations are complied with, including all limits on lending to a single borrower, which are defined to include loans and guarantees issued to companies and their subsidiaries, affiliates, and major stockholders all over the world.
To curb undue speculation in the foreign exchange market and to further reinforce the provision that peso deposits should be funded from inward foreign exchange remittances, banks are prohibited from extending peso loans to nonresidents.
Lending locally in foreign exchangeIn the case of short-term FCDU loans, including those obtained by the private sector, no prior BSP approval is required, provided that the borrower or project qualifies for foreign financing. These short-term FCDU loans must, however, be reported by the creditor banks to the BSP to be eligible for servicing with foreign exchange purchased from the domestic banking system. Medium- and long-term FCDU loans are subject to prior approval and registration with the BSP to be eligible for servicing with foreign exchange purchased froi the domestic banking system.
Effective January 21, 2003, FCDU and EFCDU funds of universal and commercial banks may lend to their regular banking unit (RBU) to fund the latter’s on–balance sheet foreigr exchange trade transactions, provided that the FCDU or EFCDU has fully complied with the requirement of 100% asset cover and 30% liquidity cover on FCDU or EFCDU liabilities. FCDU and EFCDU lending to the RBU must be at prevailing market interest rates and capped at the lower of total outstanding balance on the RBU’s on–balance sheet foreign currency trade assets or at 30% of the level of FCDU or EFCDU deposit liabilities, computed at the average daily balance (using two-month rolling data) as of the second week prior to the reference week; the maturity of such loans must be less than one year.
Effective February 10, 2004, FCDU and EFCDU loans may be transferred to their RBU without prior BSP approval, subject to conditions that apply to such transfers. The conditions include the following: (1) the FCDU or EFCDU loan is current, performing, and eligible to be serviced by the domestic banking system; (2) actual settlement is in foreign currency; (3) prior approval of the bank’s board of directors or country head and written consent of the borrower have been obtained; and (4) the loan is properly documented.
Purchase of locally issued securities denominated in foreign exchangeEFCDUs of commercial banks may invest in foreign currency–denominated securities. An FCDU of a thrift bank may invest only in foreign currency–denominated debt instruments that are of short-term maturity and readily marketable.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsEffective March 21, 2003, the liquidity reserve requirement for peso demand, savings, and time deposits and deposit-substitute liabilities of universal and commercial banks was raised to 8% from 7%. Effective February 6, 2004, the Monetary Board further raised the liquidity reserve requirement for commercial and universal banks to 10%. The regular reserve requirement was maintained at 9%. As a result, the reserve requirement applied to peso deposits and deposit-substitute liabilities of universal and commercial banks increased to 19% on February 6, 2004 (previously, 17%). A reserve requirement is not applied to deposit accounts in foreign exchange. The required liquidity reserves may be maintained in the form of short-term government securities that bear market-level yields and are purchased directly from the BSP.
Liquid asset requirementsDepository banks with FCDUs and EFCDUs must maintain at all times 100% asset cover for their foreign currency liabilities. At least 30% of the cover requirement for these liabilities must be in the form of liquid assets.
Investment regulations
Abroad by banksEffective April 11, 2003, the investment of a bank subsidiary in the equity of a subsidiary located abroad is subject to prior BSP approval provided that (1) the bank subsidiary meets certain prequalification and documentary requirements; and (2) the applicant parent subsidiary complies with the licensing requirements of the host country and secures the necessary license to operate. The proposed subsidiary may also invest in another subsidiary with prior BSP approval and is subject to the applicable BSP reporting, supervision, and examination requirements. Any outward investment representing initial capital and other outlays is subject to BSP regulations. At least 50% of the yearly net profits of the proposed subsidiary must be declared and paid as cash dividends to the parent subsidiary. Any additional funding or advances of the parent bank in the Philippines to its subsidiaries abroad or the subsidiary requires prior BSP approval.
In banks by nonresidentsForeign ownership of domestic banks is allowed up to 100%. Foreign juridical and natural persons may own 40%. However, banks that are majority foreign owned may not account for more than 30% of the total reserves of the banking system.
Open foreign exchange position limitsFor FCDUs of commercial banks and expanded commercial banks, at least 70% of the cover must be maintained in the same currency as the liability and up to 30% may be denominated in other acceptable foreign currencies. FCDUs of thrift banks must maintain foreign currency cover in the same currency as that of the corresponding foreign currency deposit liability.
Effective March 13, 2003, the limit on a bank’s long (overbought) foreign exchange position is 2.5% of its unimpaired capital or the equivalent of US$5 million, whichever is smaller (previously, 5% or the equivalent of US$10 million). No limit applies on short (oversold) foreign exchange positions. Any excess above the overbought limit must be settled daily. The BSP imposes sanctions for the violation of open-position limits. No differential treatment is ascribed to resident and nonresident deposit accounts with respect to liquid asset requirements, as all depository banks within the foreign currency deposit system are required to maintain at all times a 100% asset cover for their foreign currency liabilities, of which 30% must be liquid.
On nonresident assets and liabilitiesYes.
Provisions specific to institutional investors
Limits (max.) on investment portfolio held abroadExcept as may be authorized by the Monetary Board, total equity investments in and/or loans to any single enterprise abroad by an investment house with quasi-banking functions may not at any time exceed 15% of its net worth. Outward investments by residents in amounts exceeding US$6 million or the equivalent require prior approval and registration by the BSP. For amounts below that figure, the funds to be invested may be purchased from authorized agent banks, subject to BSP documentary requirements.
Other controls imposed by securities lawsAs a general rule, no securities may be sold or offered for sale to the public within the country unless such securities have been registered and are permitted to be sold by the SEC. A foreign corporation whose securities are listed and traded on a local stock exchange must designate a transfer agent and registrar in the Philippines. As a general rule, a broker, dealer, or salesperson must register with the SEC to do business in the country.
Changes During 2003
Exchange arrangementMarch 13. All forward contracts, i.e., outright forward and forward swap contracts to cover long-term foreign exchange requirements, were not allowed to exceed six months.
September 30. The maturity of foreign exchange forward and swap contracts was not allowed to be longer than (1) the maturity of the underlying foreign exchange obligation; or (2) the approximate due date or settlement of the foreign exchange exposure.
Capital transactions
Controls on capital and money market instrumentsFebruary 24. OBUs were allowed to hold peso-denominated assets (i.e., bonds or other certificates of indebtedness, shares of stocks, and other properties) arising from restructuring or other repayment schemes of outstanding loans, subject to the terms and conditions of the approval of such schemes. Bonds or other certificates of indebtedness issued by a third party, as well as shares of stocks and other properties acquired as a result of these schemes, must be booked at their appraised value or the loan balance, whichever is lower. Shares of stocks and other properties acquired as a result of these schemes must be sold or disposed of within a period of five years from the acquisition date. Booking of bonds, other certificates of indebtedness, and shares of stock acquired must be adjusted in cases of decline in their market value, while other properties must be subject to regular provisioning within three years of the contract date.
Provisions specific to commercial banks and other credit institutionsJanuary 21. FCDU and EFCDU funds of universal and commercial banks were allowed to lend to their RBU to fund the latter’s on–balance sheet foreign exchange trade transactions only after they have fully complied with the requirement of 100% asset cover and 30% liquidity cover on FCDU or EFCDU liabilities. FCDU and EFCDU loans to the RBU must be at prevailing market interest rates and capped at the lower of total outstanding balance on the RBU’s on-balance sheet foreign currency trade assets or 30% of the level of FCDU or EFCDU deposit liabilities, computed at the average daily balance (using two-month rolling data) as of the second week prior to the reference week; the maturity of such loans must be less than one year.
March 13. The limit on a bank’s long (overbought) foreign exchange position was set at 2.5% of its unimpaired capital or the equivalent of US$5 million, whichever is smaller (previously, 5% or the equivalent of US$10 million).
March 21. The liquidity reserve requirement for universal and commercial banks was increased to 8% from 7%.
April 11. The investment of a bank subsidiary in the equity of a subsidiary located abroad was made subject to prior BSP approval provided that (1) the bank subsidiary met certain prequalification and documentary requirements; and (2) the applicant parent subsidiary complied with the licensing requirements of the host country and secured the necessary license to operate. The proposed subsidiary was also permitted to invest in another subsidiary with prior BSP approval and was made subject to BSP reporting, supervision, and examination requirements. Any outward investment representing initial capital and other outlays was made subject to existing BSP regulations. At least 50% of the yearly net profits of the proposed subsidiary must be declared and paid as cash dividends to the parent subsidiary. Any additional funding or advances of the parent bank in the Philippines to its subsidiaries abroad or the subsidiary was made, subject to prior BSP approval.
Changes During 2004
Arrangements for payments and receiptsFebruary 26. The BSP began buying gold from small-scale miners in pesos on the basis of the average of live gold and silver prices quoted simultaneously between 8:00 a.m. and 8:30 a.m. by the London Bullion Market Association market-making members, excluding the highest and lowest quotes and rounding to the nearest US$0.05.
Imports and import paymentsFebruary 16. The BSP registration requirements for DA and OA imports were replaced by a reporting requirement to the BSP.
Capital transactions
Provisions specific to commercial banks and other credit institutionsFebruary 6. The liquidity reserve requirement for commercial and universal banks was raised to 10% from 8%. As a result, the reserve requirement applied to peso deposits and deposit-substitute liabilities of universal and commercial banks increased to 19% from 17%.
February 10. FCDU and EFCDU loans were allowed to be transferred to their RBU without prior BSP approval, subject to conditions that apply to such transfers. The conditions include the following: (1) the FCDU or EFCDU loan is current, performing, and eligible to be serviced by the domestic banking system; (2) actual settlement is in foreign currency; (3) prior approval of the bank’s board of directors or country head and written consent of the borrower were obtained; and (4) the transaction was properly documented.

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