Annual Report on Exchange Arrangements and Exchange Restrictions 2005
Chapter

PHILIPPINES

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2005
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(Position as of January 31, 2005)

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 foreign 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 among 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 U.S. 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 contracts to sell (i.e., excluding purchases) foreign exchange to nonresidents with no full delivery of principal, including cancellations and rollovers/renewals, require prior BSP clearance. All long-term (exceeding one year) foreign exchange forward contracts and nondeliverable forward (NDF) contracts (whether with residents or nonresidents) may only be undertaken by banks with expanded derivatives licenses.
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.
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.
The maturity of foreign exchange forwards (whether deliverable or nondeliverable) and swaps (sale of foreign exchange at the first leg and purchase of foreign exchange at the second leg) 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. The maturity of the above-mentioned swap contracts may not be less than 30 calendar days and not longer than (1) the maturity of the underlying foreign exchange obligation or (2) the approximate due date or settlement of the foreign exchange exposure.
Official cover of forward operationsThrough the Currency Rate Risk Protection Program (CRPP Facility), the BSP provides a mechanism for hedging the foreign exchange risk exposure of local companies by means of a NDF U.S. dollar/peso contract between the BSP and universal and commercial banks. At the maturity of the contract, only the net difference between the contracted forward rate and the prevailing spot rate is settled in pesos.
Arrangements for Payments and Receipts
Prescription of currency requirementsThere is no prescription of currency requirement 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 ringgit, 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. However, in practice, all payments for trade with ASEAN countries are settled in the acceptable foreign currencies listed above.
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) is in force for an indefinite period. 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 existing laws and 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 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 notes and coins 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 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 notes and coins imported is required to be submitted to the Bureau of Customs at the entry point only if the amount exceeds US$10,000 or its equivalent.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadForeign exchange earners are allowed to maintain foreign exchange accounts abroad. Residents are not allowed to purchase foreign exchange to deposit in these accounts.
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, whether real or personal, located in the Philippines, 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 domestic 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 and bills of lading or airway bills) 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, or 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 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 (excluding payments related to foreign loans and investments), without documentation, is US$5,000 or its equivalent for each application. For sales in excess of this amount, or for payments related to foreign loans and investments regardless of 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, foreign exchange dealers, and money changers.
Investment-related paymentsInvestment-related payments, i.e., capital repatriation and remittance of profits, may be serviced without limits using foreign exchange purchased from the domestic banking system only if they pertain to BSP-registered foreign investments.
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 may be serviced using foreign exchange purchased from the domestic banking system (i.e., authorized agent banks and bank-affiliated foreign exchange trading corporations).
The Monetary Board of the BSP sets an annual 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.
Controls on capital and money market instrumentsPursuant to the Philippines Constitution and existing BSP rules, all public and private sector publicly guaranteed obligations from foreign creditors, including offshore banking units (OBUs), must be referred to the BSP for prior approval and subsequent registration. This 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. Other private sector loans from foreign creditors, including OBUs 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 foreign currency deposit units (FCDUs) with a maturity exceeding one year are governed by the same guidelines. Short-term FCDU loans, including those obtained by the public sector, do not require prior BSP approval, provided that the borrower or project qualifies for foreign financing. However, those obtained by the private sector are subject to prior BSP approval. 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. There is no minimum holding period for other types of eligible investments.
On capital market securities
Shares or other securities of a participating nature
Purchase locally by nonresidentsEffective April 27, 2004, if at least one of the parties in the securities transaction is a bank or a nonbank financial intermediary (NBFI) under BSP supervision, securities purchased are required to be held by a BSP-accredited securities custodian/registry that must be a third party, i.e., with no subsidiary or affiliate relation with the issuer or seller of the securities. However, if the purchaser is a nonresident that is a party to an existing global custody agreement governed by foreign laws and conventions wherein the bank or NBFI is designated as custodian or subcustodian, the requirement for a third party BSP-accredited custodian does not apply. Registration with the BSP or a designated custodian bank is not mandatory if covered by a global custody agreement and the dealer bank is a BSPaccredited securities custodian. 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 an investor a 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.
Bonds or other debt securities
Purchase locally by nonresidentsYes.
Sale or issue locally by nonresidentsThese 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 residentsOutward investments by residents in foreign currency–denominated bonds or notes of the Republic of the Philippines or other Philippine entities, whether issued onshore or offshore, may not be funded with foreign exchange sourced from the Philippine banking system.
Sale or issue abroad by residentsYes.
On money market instrumentsThe regulations governing bonds or other debt securities apply.
On collective investment securitiesThe regulations governing bonds and other debt securities apply.
Controls on derivatives and other instrumentsSubject to pre-qualification and licensing requirements, banks, nonbanks with quasi-banking functions, and their subsidiaries and affiliates duly authorized by the BSP may engage in financial derivatives activities, provided one of the parties to the transaction 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. NDF foreign exchange sales by nonresidents require prior BSP clearance.
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 credits
By residents to nonresidentsThese transactions may be freely conducted provided they do not involve foreign exchange purchased from the banking system.
To residents from nonresidentsYes.
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 require prior BSP approval.
Guarantees issued by local banks and financial institutions that cover foreign obligations other than foreign loans must be registered with the BSP 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 similar BSP approval to allow servicing of any obligation arising from the guarantee using banking system resources. Other guarantees issued by nonresidents to secure obligations that are not foreign loans must be registered with the BSP to allow servicing of any obligation arising from guarantees with banking system foreign exchange resources.
Controls on direct investment
Outward direct investmentPrior BSP approval and registration are required for outward direct investments exceeding US$6 million an investor a year if the foreign exchange for the investment will be purchased 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, mediumand 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, irrespective of maturity, to nonresidents without prior approval by the BSP. It is required that the loans are 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 from the domestic banking system.
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 foreign 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 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. Moreover, effective May 13, 2004, FCDUs and EFCDUs of banks are allowed to engage in repurchase agreements involving foreign currency–denominated government securities, subject to certain conditions. Effective January 28, 2004, universal banks and commercial banks with expanded derivatives authority are permitted to invest in credit-linked notes (CLNs) and credit-linked deposits (CLDs). Universal banks and commercial banks without such authority may however, invest in single-name CLNs where the reference asset is a direct government obligation or an obligation fully guaranteed by the government. Investments in securities or debt instruments where the principal and revenue streams are linked to market risk factors (e.g., interest rate, foreign exchange, equity, or commodity price) may only be undertaken by banks with expanded derivatives authority.
Effective January 5, 2005, EFDCUs of universal or commercial banks without expanded derivatives authority are permitted to invest, for their own account, in foreign currency–denominated structured products issued by banks and special purpose vehicles of high credit quality, provided (1) the revenue streams are linked only to interest rate indices and/or foreign exchange rates other than those that involve the peso, and (2) the minimum all-in return of such investments may not be lower than zero.
Effective January 12, 2005, all universal and commercial banks with expanded derivatives authority are permitted to invest in securities overlying any tranches of securitization structures. Universal banks and commercial banks without expanded derivatives authority are permitted to invest only in securities overlying tranches of securitization structures that were rated at least A, or its equivalent, by a BSP-recognized credit rating agency.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsEffective February 6, 2004, the liquidity reserve requirement for peso demand, savings, and time deposits, and deposit-substitute liabilities of universal and commercial banks, is 10% (previously, 8%). The regular reserve requirement was maintained at 9%. As a result, the total reserve requirement applied to peso deposits and deposit-substitute liabilities of universal and commercial banks increased to 19% (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. At least 25% of the regular reserve requirement must be maintained in the form of deposits with the BSP and the remaining in the form of cash and nonnegotiable BSP-supported government securities bearing interest rate not exceeding 4%.
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 banksThe 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.
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. 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 2004
Arrangements for payments and receiptsFebruary 26. The BSP began buying gold from producers 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
Controls on capital and money market instrumentsApril 27. If at least one of the parties in the securities transaction was a bank or an NBFI under BSP supervision, securities purchased were required to be held by a BSP-accredited securities custodian or registry that must be an unaffiliated third party. However, if the purchaser was a nonresident with an existing global custody agreement governed by foreign laws and conventions wherein the bank or NBFI was designated as custodian or subcustodian, the requirement for a third party BSP-accredited custodian did not apply.
Provisions specific to commercial banks and other credit institutionsJanuary 28. Universal banks and commercial banks with expanded derivatives authority were permitted to invest in CLNs and CLDs. Universal banks and commercial banks without such authority could invest in single-name CLNs where the reference asset is a direct government obligation or an obligation fully guaranteed by the government.
February 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.
May 13. FCDUs and EFCDUs of banks were allowed to engage in repurchase agreements involving foreign currency–denominated government securities, subject to certain conditions.
Changes During 2005
Capital transactions
Controls on derivatives and other instrumentsJanuary 12. All universal and commercial banks with expanded derivative authority were permitted to invest in securities overlying any tranches of securitization structures. Universal banks and commercial banks without expanded derivatives authority were permitted to invest only in securities overlying tranches of securitization structures that were rated at least A, or its equivalent, by a BSP-recognized credit rating agency.
Provisions specific to commercial banks and other credit institutionsJanuary 5. EFDCUs of universal or commercial banks without expanded derivative authority were permitted to invest, for their own account, in foreign currency–denominated structured products issued by banks and SPVs of high credit quality, provided (1) the revenue streams were linked only to interest rate indices and/or foreign exchange rates other than those that involve the peso, and (2) the minimum all-in return of such investments could not be lower than zero.

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