lbp leasing corporation manual.pdfcredit manual 1st revision – 2014 introduction 2 i. introduction...

LBP LEASING CORPORATION

(A LANDBANK Subsidiary)

CREDIT MANUAL 2014

CREDIT MANUAL

1

st Revision – 2014

Introduction 2

I. INTRODUCTION

A. POLICY STATEMENT

This Revised Credit Policy Manual was created in pursuit of LBP Leasing

Corporation’s (LBP Lease or the Corporation) commitment in providing

suitable guide to all potential users of this manual thus hastening access to

credit and promoting growth and development for its clients. Being a wholly

owned subsidiary of Land Bank, LBP Leasing Corporation contributes to the

pursuit of bank objectives by extending lease and loan facilities to

Government and its instrumentalities, Small and Medium Enterprises (SMEs),

Corporate Accounts, Cooperatives and Financial Institutions.

LBP Leasing Corporation shall continue to be attuned with the recent changes

and development in the leasing and credit industry to continually provide for

responsive products and services that is within the mandate of the existing

laws and regulations but most especially within the mandate to which the

Corporation was created.

B. OBJECTIVES

This Credit Policy Manual is in response to the need of providing a reference

material for all potential target users which may be used under the following

purposes:

1. To provide a handy reference for target users to facilitate the effective

and efficient performance of their duties and responsibilities;

2. To ensure uniform interpretation and implementation of various credit

policies, systems, procedures, forms and other related documents among

its target users;

3. To collate and integrate various statutory various orders, circulars and

issuance on credit policies and operations into a user-friendly document

to guide users in their daily credit and audit related activities ; and

4. To meet and maintain the following institutional objectives:

A sound and diversified lease and loan portfolio;

Prudent lending practice;

Responsiveness to market requirements and needs;

Liquidity of asset risk-asset portfolio; and

Profitability commensurate to risks taken.

C. SCOPE AND LIMITATIONS

The policies contained in this manual are based on pertinent laws, Bangko

Sentral ng Pilipinas (BSP) rules and regulations, Securities and Exchange

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Introduction 3

Commission (SEC) rules and regulations, the Philippine Accounting

Standard/Philippine Financial Reporting Standard (PAS/PFRS), and internally

issued policies of the Board of Directors (BOD), the Executive Committee

(ExeCom) and the Management. The provisions in this manual reflect general

operating policies and procedures of the Corporation and may be changed,

amended or revoked as deemed appropriate.

D. TARGET USERS

The content of this manual is provided to satisfy the needs of these users

which may include the following among others:

1. Account Officers – To serve as a handy reference and quick source of

the Corporation’s credit policies and procedures;

2. Approving Authorities – To facilitate the evaluation of credit facility

proposals;

3. Oversight Units – To aid as a basis for reviewing, verifying and

monitoring adherence to credit policies, procedures and operating

guidelines thus enabling them to exercise their oversight functions

effectively;

4. Regulatory/ Supervisory Bodies – To provide information pertaining

to LBP Lease operations for the efficient discharge of their regulatory

functions.

E. REVISIONS IN THE MANUAL

1. General Policy

In view of further developing and continuously improving the Credit

Manual, the initiative to propose revisions, updates and clarifications may

originate from any concerned unit of LBP Lease as may be deemed

appropriate to the Risk Management Unit (RMU). The proposed changes

in the existing credit policies shall be reviewed by the RMU and discussed

with the Credit Committee (CreCom).

Events which should result in revision of existing or the development of

new policies and procedures may also emanate from the following:

Results and recommendations rendered by the Commission on Audit

(COA) upon completion of the annual audit;

New laws and regulations of the land , circulars and requirements

issued by governing bodies and regulators such as the Bangko

Sentral ng Pilipinas (BSP) and the Securities and Exchange

Commission (SEC);

Implementation of new technologies;

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Introduction 4

Changes in institutional policies and practices which are based on

improved efficiency; and

Result of internal studies performed by the Risk Management Unit

(RMU), Internal Audit Unit (IAU), Executive Committee (ExeCom),

Board of Directors and/or any equivalent governing body.

2. Procedures

2.1. Proposed amendments, revisions and updates are forwarded to RMU

for initial review who shall call upon the Credit Committee to discuss

the proposal.

2.2. The Credit Committee shall then evaluate the proposed changes, as

well as its impact on the operations of the Corporation. Thereafter,

the RMU shall initiate changes in the Manual by drafting a Credit

Policy Issuance (CPI) recommendation for endorsement of the

President for the Board of Directors’ consideration and approval.

2.3. Upon approval of the CPI, notice shall be given to all concerned units

of the new issuance and its effectivity date. The RMU shall present

within a month after the end of each quarter, a summary of the

updates/revisions of the sections of the Credit Policy Manual affected

by all the policy issuances approved during the immediately

preceding quarter.

2.4. The RMU shall keep a record of all additions, amendments, revisions

and/or updates on the Credit Manual to facilitate review and

research.

F. FORMAT/ LAY-OUT OF THE MANUAL

The contents of this Manual shall be printed in a form with the following

information:

Title of the Manual

Revision No. – represents the number revision from the initial issuance.

Revision Date – indicates the most recent date the policy/ procedure was

revised.

Page No. – represents the sequential page number of the sheet as part of

the Manual.

G. ADMINISTRATION, DISTRIBUTION AND MAINTENANCE

The RMU shall maintain the master copy of the Credit Manual which shall

serve as a complete reference for all credit policy and procedure matters. In

case of conflict, the master copy shall serve as the final basis or reference for

resolving issues on credit policy matters. The RMU shall also ascertain that

adequate copies of the Credit Manual are printed, including additions,

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Introduction 5

amendments, revisions or updates thereon, which will be distributed to the

concerned units/departments.

H. REVISION HISTORY

Initial Issue/

Revision Date

Date

Approved

Previous

Version Revised Chapters

June 2004

June 1, 2004

(BOD Res. No.

04-050)

n/a

Initial Issuance

June 2004

June 29, 2004

(BOD Res. No.

04-071)

Credit Policy

Manual

06012004

Chapter VIII Section

2.3

August 2014

November 19,

2014

(BOD Res. No.

14-169)

Credit Policy

Manual

06012004

Attached as Annex ____ are the amended sections of this manual.

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Credit Organization and Process 6

II. CREDIT ORGANIZATION AND PROCESS

A. OBJECTIVES OF CREDIT OPERATIONS

Being a wholly owned subsidiary of Land Bank, LBP Leasing Corporation

provide lease and credit facilities coherent to its mother bank’s objectives.

Thus the objectives of the leasing and credit operations of the Corporation

shall be as follows:

1. General Objectives

1.1. To complement and/or support the service of Land Bank of the

Philippines by providing leasing and financing facilities.

1.2. To provide financial services in support of Government program

and/or initiatives.

1.3. To generate acceptable returns and to ensure sustainability of the

Corporation.

2. Specific Objectives

2.1. To assist the Government and its instrumentalities in the acquisition

of assets that will enhance efficiency and improve delivery of its

services.

2.2. To support undertakings of business enterprises:

1.1.1. In expanding, upgrading and/or modernizing their facilities

towards improving capacity, productivity/efficiency of their

operations and becoming globally competitive; and

1.1.2. In increasing their volume of operations and sales.

2.3. To develop and test the viability of new credit products/services and

programs that will address the needs of clients of the Corporation

and Land Bank of the Philippines.

B. ACCOUNT MANAGEMENT GROUP

The Account Management Group (AMG) is the primary marketing,

evaluation and supervision unit for all the credit facilities of the Corporation.

Its functions include the following:

1. Source/market /originate lease and credit accounts.

2. Analyze, evaluate, package and review lease and credit applications.

3. Prepare credit proposals and present the same to the appropriate

approving authorities.

4. Implement/document approved lease and credit accounts.

5. Ensure completeness of all required documents.

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6. Monitor and supervise all outstanding lease and credit facilities.

7. Coordinate with Land Bank of the Philippines, guarantee/funding

institutions and other external parties on matters/transactions pertaining

or relating to accounts handled.

8. Coordinate with Account Servicing Group and other units of the

Corporation in the implementation, monitoring, and supervision accounts,

including the resolution of problematic accounts.

9. Handle the resolution of problem accounts in coordination with Legal

Servicing Unit (LSU) and other concerned units.

C. CREDIT SUPPORT UNITS

There are various units within the organization that provides support in the

lease and credit unit and other auxiliary services to the Corporation. This

includes the following:

1. Account Servicing Group (ASG)

The ASG is further subdivided into three (3) units. These are:

1.2. Documentation and Administration Unit

1.2.1. Review and check documentation of accounts for

implementation/booking to ensure completeness, correctness

and compliance to the approved terms and conditions;

1.2.2. Holds custody of Credit/Security File of all accounts;

1.2.3. Administer and monitor all transactions and documents related

to leased assets and collateral which include insurance,

ownership documents, property taxes, etc.

1.3. Billing and Collection Unit

1.3.1. Set up and maintain subsidiary ledger of all credit accounts.

1.3.2. Prepare and transmit billing statements.

1.3.3. Handle application of payments.

1.3.4. Prepare certificates of full settlement/payment.

1.4. Inspection and Appraisal Unit

1.4.1. Handle inspection and/or appraisal of equipment or real

properties that are subject of lease facilities or those used as

collateral.

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1.4.2. Conduct credit investigation of lessees, borrowers, and other

parties in relation to the lease or credit facilities being

considered or processed by the Corporation.

1.4.3. Coordinate with LBP-Property Valuation and Credit

Investigation Department (PVCID), BAP Credit Bureau, Credit

Management Association of the Philippines (CMAP), other

credit bureaus and credit units of other financial institutions on

matters relating to exchange of credit information.

2. Legal Services Unit (LSU)

The Legal Services Unit shall provide timely legal services in support of

the lease and credit operations of the Corporation. These shall include,

but not limited, to the following:

2.1. Research, review and render opinion on legal matters related to

accounts under evaluation and/or for implementation.

2.2. Preparation and review of documents necessary in the

implementation of lease and credit facilities granted.

2.3. Provide assistance and advice on problematic or remedial accounts.

2.4. Prompt preparation and implementation of collection program for

each account endorsed to the unit “for appropriate legal action”.

2.5. Provide legal advice and prepare legal documents necessary in the

disposal of the Corporation’s acquired assets.

2.6. Provide such other legal services that may be needed for effective

and efficient leasing and credit operations.

2.7. Coordinate with Office of Government Council (OGCC) for the

resolution of accounts endorsed to legal.

3. Treasury Unit (TSU)

The Treasury Unit shall provide funding and cashiering services for the

lease and credit transactions of the Corporation. The following are its

functions:

3.1. Ensure that funds are available for the disbursements programmed

for all lease and credit facilities granted;

3.2. Prepare check payments to suppliers, borrowers and other

appropriate parties for lease and credit facilities;

3.3. Accept, issue receipts for and monitor the bank clearing of payments

from clients.

3.4. Safe keep, monitor and deposit on due dates postdated checks issued

by the client; and

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3.5. Monitor the Corporation’s bank accounts for payments of client made

through deposits to the bank accounts of the Corporation.

D. CREDIT APPROVING AUTHORITIES

The following are the approving authorities for all lease and credit

transactions of LBP Leasing Corporation:

1. President

2. Credit Committee

The Credit Committee shall be composed of five (5) members of the

Management team designated by the Board of Directors. Refer to

Attachment II.1 Credit Committee Composition and Attachment II.2 for

the Credit Committee Charter

3. Executive Committee

The Executive Committee has five (5) members including the Chairman

who are elected by the Board of Directors from among the directors of

the Corporation.

4. Board of Directors

The Board of Directors has eleven (11) directors including the Chairman

who are elected by the stockholders annually or as the need arises.

The signing and approving limits are presented in detail in the attached

Codified and Approving/Signing Authority (CASA). (Attachment II.3)

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Foundation of Credit Operations 10

III. FOUNDATION OF CREDIT OPERATIONS

A. PRODUCTS AND SERVICES

1. LEASING FACILITIES

Leasing Facilities

1.1. Financial Leases

Financial Lease is a credit facility where LBP Lease (lessor) acquires

fixed assets based on the requirements/needs of the client (lessee)

which are then leased by the client (Lessee) from LBP Lease (Lessor)

through payment of periodic lease amortization. The benefits and

risks of ownership of the assets are transferred to the lessee.

This facility allows enterprises to acquire equipment, motor vehicle,

lot and building and other equipment, to expand, upgrade or

modernize their operations. It also enables enterprises to match

financing terms with the earning potential of the capital asset,

preserve working capital and credit lines and address existing or

current budget limitation.

1.2. Operating Leases

Operating Lease is a credit facility where the client (lessee) makes

rental payments to LBP Lease (lessor) for the use of an asset over a

fixed period (normally, more than a year). Under the facility, LBP

Lease retains the benefits and risk of ownership of the leased asset.

At the end of the lease term, the lessee may opt to renew the lease,

purchase the asset at its fair market value or return the asset to LBP

Lease.

Operating lease facility is for clients who do not want to be burdened

with acquisition and disposition processes and will rather not have

the risks and benefits of ownership on the asset to be acquired. It

can only be granted for selected asset types that have relatively long

economic life and well established secondary markets.

Variants of Leasing Facilities

1.3. As to Service Component

1.3.1. Net Service Lease

A lease facility in which all cost in connection with the use of

the leased asset such as maintenance, insurance and taxes are

paid for separately by the lessee and are not included in the

lease amortization and/or rental payments to the Corporation.

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1.3.2. Full-Service Lease

A lease facility wherein the cost of all maintenance, insurance

and taxes are shouldered by the lessor and are imputed in the

lease payments of the lessee.

1.3.3. Semi-Service Lease

A lease facility where the lease rental payment of the lessee

includes the cost of at least one or two but not all of the

following (1) maintenance; (2) insurance or (3) taxes.

1.4. As to Availability

1.4.1. Non-Revolving Financial Lease

A financial lease facility processed and approved for a specific

asset or a group assets (multi-asset) to be acquired.

A multi-asset is granted to expedite processing of additional

requirements of the same lessee during the year by enabling

the client to draw without need of new approvals so long as

the cumulative net exposure of LBP Lease on assets drawn

against the facility does not exceed the amount approved.

The assets may be of the same type/category or different,

may be acquired in one batch or over a period of time, may be

specifically identified immediately or not.

1.4.2. Revolving Financial Lease

A multi-asset lease facility which allows the client to draw

continuously during the validity of the facility provided the

carrying balance (outstanding principal balance) of all its

leases does not exceed the approved limit. This facility

reviewed annually and provided to client/s with good credit

standing.

2. FINANCING FACILITIES

Financing Facilities

2.1. Fixed Asset Financing

This facility provides medium or long-term financing to clients and

may be granted to provide funding for the following:

Acquisition of equipment or other capital assets to be secured

by the object to be financed.

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Construction and/or improvement of client’s fixed asset/s that

may contribute to the expansion and improvement of their

business and will be secured by real estate and/or chattel

mortgages.

2.2. Working Capital Financing

This facility provides clients with a source of funds to finance their

permanent or short-term working capital requirements.

2.2.1. Credit Line

LBP Lease provides credit lines to clients to finance receivables

and/or purchase orders or contracts. Omnibus credit lines may

also be granted where collaterals or security are available.

Variants/Purposes of Credit Line

2.2.1.1. Receivable Financing

Financing facility that provides clients a source of

working capital for its operations based on the

assignment of its outstanding receivables that are duly

acknowledged/ confirmed for products and services

that had been delivered and accepted and not in

arrears. This may also include financing of installment

sales/receivables.

2.2.1.2. Purchase Order Financing

Financing facility provided to clients as a source of

funds to finance confirmed purchase/job orders from

established corporate or institutional customers and the

receivables arising therefrom. The proceeds can be

used to purchase materials and pay for other expenses

needed to deliver the goods and services that are the

subject of the purchase orders/contracts and shall be

payable upon collection from the customer.

2.2.1.3. Omnibus Line

A collateralized credit facility provided for various

working capital requirements of the client. This credit

facility allows client make multiple availments as long

as they do not exceed the line.

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As to Availability

2.2.1.4. Revolving

Financing line where the Corporation makes a

commitment to a client to make available a certain

amount of credit where the client can draw from as

they want. Each drawdown is debited from the amount

available and as it’s repaid the amount becomes

available again as long as it is within the approved

availment period.

2.2.1.5. Single Project

Financing facility granted to clients to finance the

funding requirements of a substantial purchase order.

Single or multiple draw down of proceeds is allowed

from the approved facility for the specific

project/undertaking as approved by the Corporation. It

is normally short-term in nature since this is an

extraordinary transaction during the course of the

client’s normal operation. Importation of goods or

equipment may be allowed as part of the approved

facility.

2.2.2. Permanent Working Capital Financing

Permanent Working Capital financing may be used to provide

minimum level of working capital necessary for continuous and

sustainable operation to carry on a business for clients who

experienced certain changes in business or financial condition

(e.g. increased business volumes/sales, change in credit terms

of receivables, etc.). It may be use for reprogramming of

cash flow, acquisition of inventories and other investment

requirements of the client to ensure continuous business

operation.

2.3. Receivable Discounting/Purchase

Financing facility that provides client with working capital to improve

liquidity through the discounted purchase of receivables due in the

future on a “with recourse” or “without recourse” basis. The trade

receivables must be duly acknowledged/confirmed for products or

services duly delivered and accepted and not in arrears. It is granted

to clients that can authorize the Corporation to collect for and in its

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behalf from the obligor. The obligor, on the other hand, must

conform to the assignment and agree to remit payment/s only to the

LBP Lease. The excess of collection from the obligor shall be

refunded to the client.

The basis of the discounting (amount discounted) shall be the face

value of the receivables less the required yield. Interest shall be

computed on the amount discounted and deducted in advance from

the amount discounted.

Variants of Receivable Discounting/Purchase

2.3.1. With Recourse

Endorser shall pay the endorsee if the maker dishonors the

note.

2.3.2. Without Recourse

Endorser avoids future liability even if the maker refuses to

pay the endorsee on the date of maturity.

3. SPECIAL CREDIT PROGRAMS

Special lease and credit programs may be developed by LBP Leasing

Corporation in partnership with asset suppliers or other institutions to

facilitate the processing and implementation of lease or credit facilities for

identified sectors.

Vendor Partnership Program

Institutional Consumer Financing

Anchor-Based Program

Other Special Programs

B. ELIGIBLE BORROWERS

LBP Leasing Corporation shall extend lease and credit facilities to the

following eligible borrowers subject to the requirements, design and features

of the facilities and to the evaluation and approval of the appropriate

approving bodies.

1. Government

2. Small and Medium Enterprises (SMEs) – enterprises or corporations

with asset size of not more than P100 million (excluding the value of land

used for the project) and must not be a branch, division or subsidiary of

any large corporation;

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3. Corporate Clients – Corporations or institutions with total assets (net

value of land used in the project) of more than P100 million as of date of

application;

4. Cooperatives (Coops) – association of person with common bond of

interest who have voluntarily joined together to achieve a lawful common

social or economic end and duly registered with Cooperative Development

Authority (CDA);

5. Financial Institutions (FIs) – countryside financial institutions (rural

banks), thrift banks (i.e. private development banks, savings and

mortgage banks, savings and loan associations), universal and

commercial banks, non-bank financial institutions such as finance and

leasing companies, cooperative banks and investment houses.

6. Clients for Special Financing Programs – individuals as part of an

institutional or special program credit package; and

7. Other entities or enterprises as may be deemed appropriate and

acceptable

C. RISK ASSET ACCEPTANCE CRITERIA

The Risk Asset Acceptance Criteria (RAAC) shall serves as the basic measure

of risk asset acceptance for all lease and credit facilities of the Corporation.

1. General RAAC

1.1. The standard RAAC is presented below:

Acceptance Parameters General Acceptance Criteria

a. Character No credit or background findings on the client

and/or the major stockholders and key officers that

will have a significant adverse effect on the

operations of the enterprise/project.

b. Capacity With well-defined source of repayment.

With capacity to manage/implement the

business/project.

Debt service cover of at least 1x or better at all

times.

Business/project meets the viability and financial

ratios.

c. Condition Industry outlook (where project/business belongs)

is favorable.

No signs of pending major labor dispute.

Exhibit acceptable profitability levels

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Acceptance Parameters General Acceptance Criteria

Shall meet any of the following:

Business/project has links and/or promotes

countryside development.

Business/project is aligned to the priority programs

of the government and consistent with related

government issuances.

Contributes to countryside development by way of

providing support to forward and backward

linkages.

Support the priority sectors of the LBP.

Generate employment and with high multiplier

effect

d. Capital Debt-Equity ratio shall be acceptable based on

industry standards or at least 80:20 where no

industry standard has been established.

1.2. Other major considerations include the following:

1.2.1. Credit extension should result to positive net yield for the

Corporation; and

1.2.2. Collateral securities as second way-out should be acceptable to

management.

1.3. The unified RAAC is expressed in terms of general credit

fundamentals that hold true regardless of the credit facility.

1.4. Other businesses and projects which do not fully comply with the

unified RAAC, including the program specific criteria/requirements

presented in the succeeding sections shall be properly justified in the

credit facility proposal and approved by the credit approving

group/authority.

2. Specific Criteria and Requirements

The following specific criteria shall be used to determine among others,

compliance with the unified RAAC and as a basis for evaluation consistent

with loan requirements and program guidelines.

2.1. Government

Acceptance Parameters Acceptance Criteria

a. Debt Servicing With sufficient budget available for

servicing obligations

b. Qualitative Criteria

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Project must be duly approved by the proper authority

2.1.1. Local Government Units


a. Revenues LGU must have sufficient receipts

from Internal Revenue Allotment

(IRA) and its local revenues for the

last 3 years for its expenses and

projects.

b. Project Equity LGU shall contribute at least 10% of

the total project cost

c. Debt Servicing With sufficient budget available for

servicing of obligation

d. Qualitative Criteria

The loan shall be based on the requirements of the project but should

not be more than the net borrowing capacity of the LGU based on

Bureau of Local Government Finance certification.

Projects should be part of the LGU’s development plan.

Project must be duly approved by the LGU’s Sanggunian Council thru a

resolution.

Project should be viable and pass appropriate test of viability.

LGU should manifest a good image of political leadership and

disciplined/progressive management of its financial resources.

2.2. Small and Medium Enterprises

2.2.1. For Start-up SMEs


a. Debt- Equity Ratio Not more than 80:20

b. Qualitative Criteria

Industry has a favorable outlook

Familiarity with the proposed project can be established

No adverse finding on the owners and management

At least 60% Filipino-owned, if corporation and 100% Filipino-owned,

if sole proprietorship

Possess sufficient management and technical capabilities required by

the enterprise.

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2.2.2. For Operating SMEs


a. Profitability Profitable for the past 2 years

b. Debt- Equity Ratio Not more than 80:20

c. Qualitative Criteria

No ownership dispute for the past two (2) years

No major labor dispute for the past two (2) years

No adverse finding on the owners and management

At least 60% Filipino-owned, if corporation and 100% Filipino-owned,

if sole proprietorship

Possess sufficient management and technical capabilities required by

the enterprise.

2.3. Corporate Clients


a. Profitability Profitable in nominal terms for the last

2 years

b. Retained Earnings Must be positive

c. Debt- Equity Ratio Not more than 80:20

d. Qualitative Criteria

The corporation, its major stockholders and key officers must have

good credit standings

No major dispute among owners and management for the past 2 years

No major labor problems for the past 2 years

2.4. Cooperatives


a. Capitalization At least Thirty Thousand Pesos

(P30,000.00)

b. Profitability Profitable in nominal terms for the last

2 years

c. Debt- Equity Ratio Not more than 6:1

d. Past Due Ratio (for Coops engage

in lending activities)

Not more than 25%

e. Qualitative Criteria

Must be operating viably in the last 3 years

Must have adequate and competent management and administrative

staff

No major dispute among the Directors and members in the last 2

years

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No material adverse feedback on the cooperative, directors and

management

2.5. Financial Institutions

2.5.1. Countryside Financial Institutions


a. Capitalization Minimum required capital by BSP per

circular 156 as amended

b. Risk Asset Ratio Not less than 10%

c. Past Due rate Not more than 18%

d. Reserve Requirement Meets reserve requirement per latest

BSP Report of Examination


No Major dispute among owners and management.

No material adverse feedback on the bank, owners and management.

No significant negative findings, observations and/or comments from

BSP.

There must be no substantial decline in deposits in the last 3 years

(not more than 20% per year)

2.5.2. Financing Companies and Other Non-Bank Financial

Institutions


a. Capitalization Complies with minimum capitalization

required by the Securities and

Exchange Commission (SEC) or the

appropriate regulatory authority


2 years

c. Capital to Risk Asset Ratio At least 10%

d. Current Ratio At least 1:1

e. Net Past Due Ratio Not more than 15%

f. Qualitative Criteria

No Major dispute among owners and management

No material adverse feedback on the institution, owners and

management


concerned regulatory authority

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2.5.3. Thrift Banks, Commercial Banks and Universal Banks


a. Capitalization Complies with minimum capitalization

required by the Bangko Sentral ng

Pilipinas (BSP)


3 years

c. Capital to Risk Asset Ratio At least 10%

d. Net Past Due Ratio Not more than 15%


No Major dispute among owners and management

No material adverse feedback on the bank, owners and management


BSP

2.6. Clients of Special Financing Programs

Acceptance Criteria

Must be Filipino citizen of legal age but not more than 65 years of age

upon maturity of credit term

Must prove adequate permanency of residence and easy accessibility

Must have no pending administrative and/or criminal case filed

Must comply with the specific requirements/guidelines of the program

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D. CREDIT PROCESS FLOW

Market Identification

Credit Initiation

Origination

Evaluation, Packaging

and Initial Review

Review and Approval

Credit Implementation

Credit Documentation

Releases/Availments

Portfolio Management

Administration

Orderly Payment Unforseen Events

Remedial

Management

Repayment/Recovery Loss

Management

Approving Authority

Account Management

Group

Account Management

Group

Legal Servicing Unit

Account Servicing

Group

Account Management

Group

Legal Servicing Unit

Account Servicing

Group

Account Management

Group

Prepare strategic plans and

marketing strategy

Prepare business plan consistent

with the overall corporate

directions

Initiate, evaluate, negotiate and

package credit proposals.

Review credit proposals

Review, endorse and approve

credit proposals based on CA/SA

Gather and review all required

documents from clients.

Prepare and review availment

and legal documents.

Ensure compliance with

approved terms and

conditions, and availment

policies.

Monitor/manage/

administer the account

until full payment/

settlement or administer

remedial measures in

case of problematic

accounts.

PROCESS RESPONSIBLE UNITS RESPONSIBILITY

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Credit Initiation 22

IV. CREDIT INITIATION

Credit Initiation refers to the introduction of the products and services of the

Corporation to clients and the evaluation, packaging and approval of appropriate

credit facilities.

A. PROCESS FLOW


CREDIT INITIATION

Credit Origination

Source Input Process Output Customer

Clie

nt

Ac

co

un

t O

ffic

er

List of

Prospects

Call Report

Prospective Clients

AMG Head

Provide checklist of

documentary

requirements

Checklist of

documentary

requirements

Approved

Business PlanManagementInformation Gathering

Client Calls

Solicitation

Checklist of

documentary

requirementsAccount Officer

Complete and submit

documentary

requirements

Documentary

Requirements

Credit

Evaluation

and Approval

Referrals

Publications

Internet

Appraisal Report


CREDIT INITIATION

Credit Evaluation and Approval


Ac

co

un

t O

ffic

er

AM

G H

ea

d/

Pre

sid

en

tA

cc

ou

nt

Off

ice

r

AMG Head/

President

External Sources

AMG Head/Team

Head

Application

Report with

Instructions

Credit

Investigation

Report

Assess client’s

business, financing

requirements and

associated risks and

analyze financial

statements

Prepare financial

projections and

credit facility

proposal

ICRRS

BBI

CFP

A

Request for CI/BI and

Appraisal

CIBI/

Appraisal

Request

CIBI and

Appraisal

Credit FolderFile

Application

Report AMG HeadPrepare client

credit folder

Conduct Preliminary

Review based on

documents submitted

Documentary

RequirementsCredit

Origination

CIAD Unit

Business

Information

Application Report

with comments/

instructions

Review and provide

initial assessment

comments

Account Officer

Application

ReportAccount Officer

CREDIT MANUAL

1




CREDIT INITIATION



Ac

co

un

t O

ffic

er

Ap

pro

vin

g

Au

tho

riti

es

AM

G H

ea

d/T

ea

m H

ea

d

Approving

AuthoritiesAccount Officer

AMG Head Account Officer

Approving

Authorities

Client

ICRRS

BBI

Review proposal and

related documents

Endorsed ICRRS

CFP

Endorsed BBI

Endorsed CFP

Evaluate proposal

Notice of DenialApproved?

Notice of

Approval

NO

Approving

Authorities

Resolution

Approving

Authorities

Resolution

A

Prepare notice of

approval and basic

legal documents

YES

Basic legal

documents

Endorsed ICRRS

Endorsed BBI

Legal Counsel

Endorsed CFP

B


CREDIT INITIATION



Ac

co

un

t O

ffic

er/

Ac

co

un

t A

ss

ista

nt

Clie

nt

Le

ga

l C

ou

ns

el

B

Reviewed basic

legal documents

Account Officer

ClientAccount Officer

Draft basic legal

documents

Review basic legal

documents for legal

sufficiency and

compliance with terms

and conditions of

approval

Review, conform and

sign NOA and basic

legal documents

Reviewed basic

legal documents

Notice of

ApprovalAccount Officer

ClientCredit

Implementation

Signed basic

legal documents

Signed basic

legal documents

Conformed NOAFile documents

File

Conformed NOA

CREDIT MANUAL

1



B. RELATED PROCESSES

1. Credit Origination

This shall refer to the process in which the Accounts Officers (AOs) seeks

prospective clients in market and industries coherent with the marketing

plan prepared.

2. Credit Evaluation and Packaging

This shall involve collecting the required documents and gathering of

relevant information from the prospective client. In this process, the

Account Officers shall evaluate all credit information about the borrower

and the project for financing.

2.1. General Guidelines

2.1.1. The Account Officers shall collect all the required

documents and relevant information from the prospective

client based on the prescribed standard checklist of

requirements shown as Attachment IV.1. The

requirements are by no means complete. The Account

Officer, however, should ask for other requirements for

the client to better evaluate the proposed credit

transactions. Therefore, the list may be

expanded/shortened depending on the industry/project.

2.1.2. Credit evaluation is made against the credit fundamentals

and specific Risk Asset Acceptance Criteria (RAAC) set

forth by the Corporation. The Account Officer should

always be mindful of the various risks associated with the

account. In evaluating the credit fundamentals and the

RAAC should be considered.

2.1.3. No one person shall perform both the credit evaluation

and credit investigation/collateral appraisal.

2.1.4. The client’s credit ratings using the Corporation’s Internal

Credit Risk Rating System (ICRRS) shall also be

considered in the evaluation of accounts. Please refer to

Attachment IV.2 for the Implementing Guidelines for the

use of ICRRS.

3. Credit Approval

This shall refer to the process where an account is presented to approving

authorities for credit decision. The approving limits of the approving

authorities should be consistent with the Corporation’s Codified

Approving/Signing Authority (CASA).

CREDIT MANUAL

1



C. GENERAL CREDIT GUIDELINES

1. Pricing

1.1. Pricing of the credit transaction shall be based on LBP Lease’s

Reference Rate at the time of availment plus applicable spread.

1.2. Interest pricing shall consider the cost of funds of the Corporation.

1.3. Consideration in Pricing

The spread on the facility shall be determined using the various

considerations in pricing given in the following:

1.3.1. Prevailing Industry Rates

Due consideration shall be given to the interest rates

charged by other financing companies for similar

transactions of similar client types/categories in pricing.

1.3.2. Credit Standing /Rating of the Client

The spread to be used in setting the effective yield

transactions shall be based mainly on the credit standing

of clients that meet the LBP Lease risk acceptance criteria

as well as its rating based on the ICRRS.

Rating Range for Spread

Excellent From 2.0% to 3.5%

Strong From 2.5% to 4.5%

Good From 3.0% to 5.5%

Satisfactory From 3.5% to 7.0%

Acceptable Minimum of 4.0%

The Account Officer shall take note of the other

considerations in pricing in determining what rate in the

range shall be used on a facility.

Government accounts and special programs need not be

covered by the suggested spread.

1.3.3. LBP Lease Experience with Client

In pricing facilities for existing or past clients of LBP

Lease, considerable weight shall be given to the handling

experience of the Corporation with the client.

1.3.4. Object of Lease / Collaterals / Other Securities

Due consideration shall be given to the:

a. Object Lease

CREDIT MANUAL

1



The refer to the type and nature of asset/s to be

leased with respect to its recoverable value as well

as ease repossession and disposition in the event

of default.

b. Collaterals and Other Securities

The type (real property or personal property) and

the value of the collaterals as well as other forms

of security for the facility granted.

1.3.5. Amount of the Facility / Total Business Dealings

Because the administrative cost of client processing and

administration is not proportionate to the amount of the

facilities granted, the amount of the facility and/or the

total transactions of the client with LBP Lease shall be

considered in pricing.

2. Repayment Mode and Term

In structuring repayment mode the following considerations should be

taken into account:

2.1. Purpose or Use of the Facility

Repayment term of facilities granted shall always correspond to

the purpose and nature of the requirements. That is, short term

facilities shall be given for short term working capital requirements

and medium or long term facilities for permanent working capital

and acquisition of fixed assets.

2.2. Cash Flow of the Project and the Client

The repayment term and schedule must be structured to

correspond to the cash flow of the project and the client. That is,

business of cash build-up period, seasonality of sales of business

cycle, investment/expansion requirements and other debt-

servicing requirements of the clients shall always be considered in

the structuring of repayment schedule.

2.3. Economic Life of the Asset to be Financed

The repayment shall be never longer than the economic life of the

asset to be financed.

2.4. For short-term availments, the executed promissory note (PN)

should be maximum of one year with maturity falling on a working

day.

2.5. For term loan accounts, loan payments and interest re-pricing

should be scheduled to fall on the same transaction date. To

CREDIT MANUAL

1



ensure that the transaction date for payments and re-pricing

coincides, the following modes of reckoning shall be proposed and

reflected in the CFP:

Monthly;

Quarterly;

Semestral; or

Annual

2.6. In instances when loan payment falls on a weekend or holiday, the

following policy guidelines shall be followed:

Principal

payment of

Working

Capital

Financing

Actual date/

Transaction

Date

Adjusted

Due/

Transaction

Date

Computation

of Interest Penalties

Payment on

PN Maturity

Declared

holiday

Next working

day

Number of

days the PN is

outstanding

None

3. Availability Period

3.1. Availability period shall be within one year from the approval date

for all type of facilities.

4. Mode of Release/Availment

4.1. Financing that involves construction of buildings and other

infrastructure shall be released on a project completion basis.

4.2. The equity of the borrower should be fully in place before the

Corporation makes any loan release.

4.3. Loan proceeds for machinery and equipment acquisition preferably

be released directly to supplier/s or coursed via L/C.

Reimbursement on loans is allowed as long as the

equipment/asset has been acquired less than 6 months.

4.4. For sale and leaseback transaction, the Corporation shall

reimburse to the client the cost of the assets acquired.

5. Insurance

5.1. As a general rule, all insurable collateral shall be insured with an

insurance company accredited by Land Bank of the Philippines and

thru LBP Insurance Brokerage, Inc. (LIBI). Any exception shall be

approved by the approving authority based on CASA. LIBI shall

CREDIT MANUAL

1



provide LBP Lease with an updated list of accredited insurance

companies on a periodic basis.

5.2. Buildings under construction that are being financed by the

Corporation should be covered by a Contractors All Risk Insurance.

Once completed, said building shall be covered by all risks

insurance.

5.3. Insurance coverages which are being secured/handled by LBP

Lease shall automatically be renewed upon the expiration of

coverage and the borrower/client shall be billed of the insurance

premium.

5.4. Prior to expiration of insurance coverage, clients who were

allowed to secure their own insurance coverage shall be informed

by LBP Lease of the expiration. The borrower shall renew and

endorse in favor of the LBP Lease the insurance coverage and

submit related documents to the Corporation. If the borrower fails

to renew the policy, the Corporation shall renew the insurance

coverage and book the premium paid as account receivable from

the borrower with interest rate aligned with the interest of the

loan. Payment shall first be applied to liquidate insurance

premium including interests, penalty charges, etc. A written

notice of renewal and request for reimbursement of the insurance

premium shall be sent to the borrower.

6. Collateral and Security Requirements

6.1. Acceptable Collaterals

In principle, a lease facility does not require hard collateral in as

much as the leased asset owned by LBP Lease can stand on its

own. However, the following are the acceptable collaterals for

some facilities which may require hard collateral:

6.1.1. Real Estate Mortgage (REM) on acceptable residential or

commercial properties.

6.1.2. Assets pertaining to the project, both existing or to be

acquired.

6.1.3. Other assets owned by the borrower not necessarily

related or pertaining to the project.

6.1.4. Other assets not owned by the borrower but legally

acceptable by virtue of a 3rd Party Mortgage.

6.2. Types of Collaterals

6.2.1. Real Estate Mortgage

CREDIT MANUAL

1



The conveyance of a real estate property as security for

the payment of the loan and conditioned to become void

upon such payment.

6.2.2. Chattel Mortgage

Similar to REM, except that the subject is chattel or

personal property

6.2.3. Hold-out on Deposits

Pertains to the transfer or setting over of deposits or of

rights or interest therein from one person to another, or

the act by which one person transfers to another, or

causes to vest in another, his right over said deposits. It

merely purports to convey the deposits as collateral in

order to secure the payment of the loan. If the borrower

pays the obligation on maturity, the transfer becomes null

and void.

6.2.4. Third Party Mortgage

This is executed when the borrower is not the owner of

the offered collateral.

6.2.5. Negative Pledge

An undertaking on the part of the borrower whereby he

agrees not to mortgage, encumber, transfer or dispose of

his fixed assets without the consent of the Corporation

while the obligation is outstanding.

6.2.6. Mortgage Trust Indenture

This is executed by a borrower who has a huge property

and has assigned a trustee/custodian of this property. All

the creditors will have to receive a Mortgage Participation

Certificate indicating the extent of the collateral portion

for the corresponding loan amount of each creditor.

6.2.7. Assignment of Receivables

Client transmits to the Corporation the rights, title and

interest against a third person either by way payment or

as a security.

6.2.8. Joint and Several Signatures (JSS)

Surety binds himself solidarily with the principal debtor.

However, in this undertaking the surety does not incur

liability unless and until the principal debtor is held liable.

CREDIT MANUAL

1



In the suretyship, the creditor deals/transacts with both

the principal borrower and the surety.

6.2.9. Parent Guaranty

Written promise to pay for a debt in case of failure of the

principal debtor. In case of default, foreclosure shall be

done on the principal borrower first. The guarantor’s

property shall be subject to foreclosure if the total value

of properties of the principal debtor is insufficient to cover

the obligations.

6.2.10. Cross Guaranty

This exist when a person or a company guarantees the

loan of another and vice-versa.

6.3. Valuation of Collateral

Collateral Loan Value

Land 60-70% of appraised value

Building and Improvements 60% of appraised value

Chattels 50-70% of appraised value

Deposit Hold-out 100%

6.4. Evaluation of Collateral

In the evaluation of the collateral, attention must be focused on

the:

6.4.1. Reasonableness of the valuation;

6.4.2. Marketability of the asset; and

6.4.3. Realizability of the asset values.

6.5. Sureties executing the JSS shall secure their respective spouse’s

consent. Both spouses shall sign the surety agreement and should

submit Statement of Assets and Liabilities made under oath.

7. Credit/Background Investigation

7.1. Credit Investigations are conducted on the following:

7.1.1. principal borrower/s and co-borrower/s

7.1.2. surety/ies

7.1.3. key personnel/officers

7.1.4. third party mortgagor

7.2. Key personnel are defined as individuals who play major roles in

the business. The key officers may include:

CREDIT MANUAL

1



7.2.1. President (or its equivalent);

7.2.2. Treasurer (or its equivalent); and

7.2.3. Other Key Officer (e.g. Chief Operating Officer, Finance

Officer, etc).

7.3. The key officers of financial institutions/ countryside financial

institutions shall not be subjected to CI.

7.4. For Countryside Financial Institutions (CFI), (including Rural Banks

and Thrift Banks), CI shall be conducted on the stockholders with

paid-up capital of equal or more than 10% and belonging to the

top 60% of the total stockholdings, but with a maximum of 6

stockholders.

7.5. For other Financial Institutions (FI), CI shall be conducted on the

Board of Directors (BOD). The BOD should include the Chairman

and four (4) members, preferably those with holdings of 10% or

more; or those representing corporate shareholders. The

stockholders/BOD of universal and foreign banks shall not be

subjected to CI.

7.6. For cooperatives, including co-op banks, CI is done on all the

members of the BOD.

7.7. For borrowers other than the FIs and co-ops, CIs are done on

stockholders with stockholders equal or more than 10% and

belonging to top 80% of the total stockholdings; thus, a maximum

of eight (8) stockholders can be subjected to CI.

7.8. In the event that a borrower’s stockholder is a corporation (i.e.

with stockholdings equal or more than 10% and belonging to the

top 80% of total stockholdings), the following guidelines shall be

followed:

If the stockholder corporation belongs to the Top 1000

Corporations, there shall be no further CI on the corporation

unless warranted by circumstances;

If the stockholder corporation does not belong to the Top 1000

Corporations, further checking with the Securities and

Exchange Commission (SEC) shall be conducted to verify that

the corporation is still in operations; and

In highly justifiable cases, further CI on the stockholder

corporation’s stockholders may be conducted. However, this

shall be limited to stockholders with stockholdings equal or

more than 30% of the total stockholdings; thus, a maximum of

three (3) stockholders can be subjected to further CI.

CREDIT MANUAL

1



7.9. In case a borrower’s stockholder is a foreign corporation, checking

shall be conducted, if feasible, in the corporation’s country of

registration upon request to Landbank office in this country.

7.10. For Local Government Units (LGU), the following officials are

subject to a complete CI and may also be expanded to include the

Sanggunian Members who are directly involved in the

implementation of the project financed by LBP Lease:

7.10.1. For Municipality/City Government

Mayor;

Vice-Mayor;

Treasurer; and

Municipal/City Administrator

7.10.2. For Provincial Government

Governor;

Vice-Governor;

Treasurer; and

Provincial Administrator

7.11. For government sector clients, presidential appointees shall not be

subjected to CI.

7.12. CI should not be more than twelve (12) months or one year

7.13. For clients with cases filed against them, the Account Officers are

required to request opinion of Legal Counsel relative to the effects

on the account of cases filed against the borrower, its board of

directors (BOD), and/or key officers. This will ensure accuracy of

analysis of legal risks that LBP Lease needs to mitigate or address

if any.

7.14. The following borrowers shall be covered by CI on trade creditors

and/or suppliers:

7.14.1. Borrowers which are engaged in manufacturing or

construction;

7.14.2. Borrowers not belonging to the Top 5000 Corporations;

and

7.14.3. Borrowers whose business is new (2 years or less) in the

industry.

7.15. The following trade creditors/suppliers of borrowers shall be

exempted from trade checkings:

CREDIT MANUAL

1



7.15.1. Affiliates or stockholders of the borrower; and

7.15.2. Those with offices located abroad.

7.16. Results of credit investigation shall be treated with strict

confidentiality. Any disclosure to any person or entity other than

LBP Lease may result to the cancellation of LBP Lease’s access on

the sources of this credit information such as the credit bureaus.

8. Grace Period

8.1. In general, financing with a term of more than one year may

include a deferred payment plan or grace period on principal

and/or interest.

8.2. An account shall merit a grace period on principal on the following

cases:

8.2.1. For the duration of the construction period, if project for

financing involves construction of building and

infrastructure;

8.2.2. If projected cash flow in the initial years of the project is

not sufficient to service the principal portion of the loan.

8.3. However, on exceptionally meritorious cases, initial amortization

may be deferred, but in no case shall the amortization date be

later than five years from the date the credit is granted; provided

further, that the projects are not start-up but rather an expansion

of existing projects or additional projects.

8.4. Capitalization of interest during grace period/construction period

for projects may be allowed.

8.5. Extension of grace period is subject to approval of original

approving authorities and it is the responsibility of the Account

Management Group to ascertain the viability of the projects to be

financed and to evaluate the capability of the borrower.

9. Fees and Charges

9.1. Borrower/client will be charged appraisal fee for the valuation of

collateral/equipment financed by LBP Lease.

9.2. Pre-termination fee of 2% of the outstanding principal balance

shall be charge by the Corporation when the account is taken-out

by another financial institution except when expressly waived in

the approval of the facility.

CREDIT MANUAL

1



10. Taxes

10.1. Income tax payments of clients should be disclosed in the CFP,

STOT or Restructuring Proposal and other approval media for

credit transactions.

10.2. Borrower/client shall submit tax clearance on the real properties

offered as collateral as proof that the real property taxes are

paid/updated at the time these are offered as collateral to LBP

Lease.

D. CONSIDERATIONS IN PACKAGING/STRUCTURING CREDIT TERMS

AND CONDITIONS

In structuring the terms and conditions of a credit or lease transaction, an

account officer should be reminded of the following:

1. Fund matching principle must be observed. Short-term facilities shall be

proposed for short-term credit requirements while term facility shall be

considered for project financing.

2. The terms and conditions should be flexible and responsive to the

changing economic environment, the rise and fall of industries and the

competition in the leasing and financing industry.

3. Common sense and good judgment is a must in structuring a credit

package. Credit decision cannot be based entirely on a static set of credit

guidelines or analytical techniques. A proactive stance is thus a must.

4. In structuring a credit package, terms and condition should not be limited

to the provisions in the credit manual. Other terms and conditions

appropriate to the project may be formulated provided said terms are

designed to minimize or address the associated risks.

5. The structure of a credit package, including the terms and conditions,

should be clearly stated in the Credit Facility Proposal (CFP) under the

section “Terms and Conditions”. The standard terms and conditions need

not be specified in the CFP, but should be reflected on the legal

documents and discussed with the client.

6. Reference should be made to point issues such as credit policies of LBP

Leasing Corporation, covenants governing the lease/loan, fees and

charges, etc.

7. Although a particular situation may not fit the definition of any of the

outlined suggested terms and conditions, good credit practice involves

solicitation of advice or consultation from concerned specialized units,

whenever appropriate.

CREDIT MANUAL

1



8. All the deviations from the standard terms and conditions shall be

highlighted and justified in the proposal.

E. CREDIT APPROVAL MEDIUMS AND RELATED DOCUMENTS

1. Call Report

A record of an Account Officer’s visit to a borrower. Sample Call report

format is included as Attachment IV.3.

2. Credit Facility Proposal (CFP)

The document used in proposing credit to the approving authorities. It

contains the detailed information on the client, the transaction and/or

project, terms of condition, the results of evaluation of the financial

performance, projected financial statements, results of credit investigation

and the deviations from RAAC. Sample CFP format is included as

Attachment IV.4.

3. Special Transaction Offering Ticket (STOT)

The STOT is the document used in proposing the following among others:

3.1. Amendment of/regularization of deviations from the approved terms

and conditions;

3.2. Partial release/substitution of collateral; and

3.3. One-time or case-to-case transactions

Sample STOT format is included as Attachment IV.5.

4. Basic Business Information (BBI)

Contains a brief background on the borrower and the borrowing firm.

Sample BBI format is included as Attachment IV.6.

5. Credit Investigation Report (CIR)

Summarizes the results of the credit investigation conducted on the

borrowers thru credit bureaus which may include BAP, NFIS, CMAP, LBP

Loandex and other credit bureaus. Sample CIR format is included as

Attachment IV.7.

6. Appraisal Report

Covers the results of the appraisal conducted on the collaterals offered or

the asset to be leased when applicable. It shows the bases for valuation

made. Sample Appraisal Report format is included as Attachment IV.8.

CREDIT MANUAL

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F. ADVICE OF APPROVAL AND DISAPPROVAL OF CREDIT FACILITIES

1. The Account Officer must ensure that every credit extension is supported

by the required approvals that shall be properly documented.

2. The client should be informed of the approval of his application through a

Notice of Approval (NOA) signed by the President. The advice shall

clearly state the following information:

Type of facility

Amount approved

Date approved

Basic terms and conditions

Other pre-release and post-release conditions

A copy of the NOA with the client’s conformity shall be returned to the

Corporation. Sample NOA format is included as Attachment IV.9.

3. Should the account be denied, a Notice of Denial/Disapproval shall

likewise be sent signed by the President. Sample Notice of Denial is

included as Attachment IV.10.

CREDIT MANUAL

1


Credit Implementation 37

V. CREDIT IMPLEMENTATION

A. PROCESS FLOW


CREDIT IMPLEMENTATION

Credit Documentation and Availment


Ac

co

un

t O

ffic

er

Ac

co

un

t O

ffic

er/

Ac

co

un

t A

ss

ista

nt

Validation ReportClient

Account AssistantValidated Report

Availment Memo

AMG Head

Credit

Initiation

Availment

Request

Review and

processing of

availment request

Request Price

Validation/Appraisal/

InspectionCIBI and

Appraisal

CIAD Unit

Results of Price

Validation

Approved

Appraisal/

Inspection Report

Prepare

Availment Memo

A

LIBI

Review/validate

supporting

documents (PO,

contracts, etc.)

Request

Insurance

Quotation

Review results of

validation,

appraisal,

inspection

File Signed basic

legal documents

Conformed NOA

Accomplish

availment

checklist

Accomplished

availment

checklist





Pre

sid

en

t

Accomplished

availment

checklist

AM

G H

ea

d

Accomplished

availment

checklist

Accomplished

availment

checklist

Le

ga

l C

ou

nse

lA

cco

un

t O

ffic

er/

Acco

un

t A

ssis

tan

t

Draft Legal

Documents Legal Counsel

Account Officer/

Account Assistant

Approved

Availment Memo

Signatories

Account Assistant

Draft Legal

Documents

Finalized Legal

Documents

Endorsed

Availment MemoAccount OfficerAvailment Memo

PresidentEvaluate availment

memo

AMG Head

Endorsed

Availment Memo Approved?

Approved

Availment MemoYES

Disapproved

Availment Memo

Account Officer/

Account Assistant

NO

Prepare and review

draft of legal

documents for

availment

Review and finalize

legal documents

A

B

CREDIT MANUAL

1







Do

cu

me

nta

tio

n a

nd

Ad

min

istr

ati

on

Un

itA

cc

ou

nt

Off

ice

rs/A

cc

ou

nt

As

sis

tan

ts

Other requirements

SignatoriesDocumentation &

Admin Unit

Accomplished

Availment

Checklist

Request for

Registration of

Mortgage

Updated Credit

Folders

Signed and

Notarized Credit

Documents Update credit

folders

Review accuracy

and completeness

of documents

B File

1

Credit

Investigation

and Appraisal

Account Officer/

Account Assistant

Credit Folders

Review documents

completeness, accuracy

and compliance to

approved terms,

conditions and policy.

Release authority

Account Officer/

Account Assistant

C

With exceptions?

NO

Authorize release of

proceeds

Exception SheetYES





Pre

sid

en

tA

cc

ou

nt

Off

ice

r/A

cc

ou

nt

As

sis

tan

tA

cc

ou

nt

Off

ice

r/

Ac

co

un

t A

ss

ista

nt

Corrected

exception

Implementation

Memo

Release authority

Documentation &

Admin Unit

Seek approval

Bank/Client/

Supplier

Release

proceeds

Prepare

implementation

memo

Memo with Deed

of Undertaking

Debit Advice/

Cheque

President

Account Officer/

Account Assistant

Memo with Deed

of Undertaking Approved?

Approved

Exception Memo

Disapproved

Exception MemoAccount Officer/

Account Assistant

Correct

exceptions

Central Liability

Monitoring and

Billing

YES

NO

C

Exception SheetJustified?

Correct

exceptions

YES

NO

Corrected

exception 1

1

1President

Disapproved

Exception Memo

Document

and Collateral

Administration

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1



B. RELATED PROCESSES

1. Credit Documentation

This shall refer to the substantiation of the decisions and actions on all

approved accounts. This involves completion of all legal documents to

implement the credit transaction. A checklist of documents needed for

Credit Documentation is presented as Attachment V.1.

1.1. General Requirements

1.1.1. Contracts and documents implementing the credit

transaction shall be signed in accordance with the CASA

and the borrower and shall be reviewed for legal

sufficiency (see Attachment V.2 for the sample review

sheet).

1.1.2. The terms and conditions stipulated in the credit

agreements shall be consistent with and in accordance

with the Credit Facility Proposal (CFP).

1.1.3. Credit availments/drawdowns shall be supported by

evidence of indebtedness/obligation and/or appropriate

collateral/security agreement duly executed by the

borrower.

1.1.4. In case of line extension, proper approval and

documentation shall be secured.

2. Credit Availments/Disbursements

This is the process wherein the terms and conditions of the credit

agreement with the clients are executed. Proceeds of the client’s

borrowings are released at this stage.

2.1. General Guidelines

2.1.1. Release or availment shall be in accordance with the

approved terms and conditions and subject to completion

of all necessary and appropriate legal documents as

evidenced by a certificate of legal sufficiency.

2.1.2. For availments approved on an exception basis, there

must be close monitoring until the terms and conditions

(e.g., registration of REM/CM or payment of RETR after

any availments, etc.) have been complied. Exceptions

shall be specifically stated in the CFP as post-release

requirements and compliance therewith shall be time-

bounded. Deletion of such exemption or extension of

CREDIT MANUAL

1



timeframe shall be requested through a memo proposal to

be approved by the original approving body.

2.1.3. Prior to the release or availment, the following conditions

should be met:

a. All pre-release requirements and conditions have

been complied with and proper legal

documentation has been completed, including the

registration of mortgage documents with

appropriate registrars.

b. The credit line has not expired or has not been

exceeded.

c. Borrower has no past due availment.

d. Amount to be released will not exceed the

approved credit limit (for credit line), or in

accordance with the approved schedule of releases

(for term loans).

e. All availment documents such as Lease Schedule,

Promissory Note (PN) and Disclosure Statements

have been signed by the borrower, and signed by

the Account Officer/or LBP Lease’s representative

as witness; and other documents duly

authenticated; and

f. All PNs with Deed of Assignment or Undertaking

should be accomplished and executed by the

borrower and signed by the Account Officer as

witness.

2.1.4. For lease transactions, proceeds shall be released to the

supplier of the object of lease unless otherwise provided

in the CFP or it is a sale and leaseback transactions.

2.1.5. Unless otherwise provided in the CFP, loan proceeds shall

be credited directly to the Land Bank account of the

borrower or to the suppliers in cases where proceeds are

for the acquisition of machinery, equipment and other

similar expenditures.

2.1.6. Releases should pass through different signatories

authorized under the CASA. No one person or division

can singularly approve or effect a release.

2.1.7. For leases/term loans released in tranches, each tranche

or availment/loan release shall be covered by a separate

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PN. The maturity of the loan reflected in the succeeding

PNs (covering succeeding tranches) shall mirror the

maturity reflected in the first PN (covering the first

release). There is no need to consolidate the PNs, unless

otherwise required by the special financing program.

C. STANDARD DOCUMENTS AND DESCRIPTION

1. Account Management Group shall secure legal sufficiency from the Legal

unit for all necessary legal documents prior to the initial

release/restructuring of or availment from the credit facility. In the case

of syndicated and restructured loans/leases of AMG, preparation, review,

and finalization of loan/leases and collateral documents are the

responsibility of the Legal Services Unit.

2. Account Officers (AOs) shall serve as witness to the signing of all legal

documents and shall verify the signatures of borrowers to ascertain

authenticity. Names of all signatories shall be printed. To this effect, a

Board Resolution (for corporations, cooperatives and associations)

containing the incumbent officers and their respective officers shall be

submitted. Specimen signatures of all signatories, including the Corporate

Secretary, shall be maintained and updated yearly.

3. Standard credit and collateral documents shall be used as evidences of

indebtedness or to provide support to credit extensions.

4. Other transactions covering specific needs of clients which are not

covered by the documents presented below shall be supported by

documents especially prepared to capture the peculiarities of the account.

In all case, AMG shall seek the assistance of the Legal Servicing Unit in

the preparation of legal documents and these shall be reviewed for legal

sufficiency.

5. Principal Credit/Lending Documents

5.1. Master Lease Agreement

Core document in a lease transaction. It covers all the terms and

conditions relating to the lease of the property between the lessor

and lessee. It makes the lease schedules and other pertinent

documents as part of the master lease agreement. Sample format

is included in Attachment V.3.

5.2. Loan/Line Agreement

Contract between LBP Leasing and the client covering the grant of

loan by the former to the latter under certain terms and

conditions. Generally, it stipulates the loan type and purpose,

CREDIT MANUAL

1



amount, interest rate, penalties and charges, manner of

repayment, availment, events of default, representations,

warranties, covenants, and other stipulations or provisions not

generally covered by the Promissory Note (PN) or collateral

document documents securing the obligation. Sample format is

included in Attachment V.4. For other types of loans and special

arrangements, “tailor-made” documents to be prepared by Legal

Services Unit may be used.

5.3. Credit Line Agreement

Core document covering the terms and conditions whereby the

proceeds of the credit facility are to be used for financing

receivables (promissory notes, purchase orders, contracts,

commercial papers, bills of exchange, checks) from entities

acceptable to LBP Lease.

5.4. Restructuring Agreement

This is used to document new terms and conditions affecting

loan/lease transactions in instances where borrower fails to meet

his maturing obligations and/or by way of payment arrangement.

See Attachment V.5 for Restructuring Agreement.

6. Availment Documents

6.1. Lease Schedule

Forms part of the Master Lease Agreement. It describes the

property to be leased and the financial terms (lease payments,

lease term, security deposit). See Attachment V.6 for Lease

Schedule

6.2. Promissory Note (PN)

An unconditional promise in writing made by one person to

another, signed by the maker, engaging to pay on demand or at

fixed or determinable future time a sum certain in money to order

or to bearer. It is a principal evidence of indebtedness and is to

be considered along with the loan or credit line agreement.

Sample PN shown on Attachment V.7.

6.3. Disclosure Statement

A document disclosing to the client the details of the loans to be

released. The disclosure statement is attached to the PN.

Sample Disclosure Statement is shown on Attachment V.8.

6.4. Amortization Schedule

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A table showing the amount of principal and the amount of

interest that comprise each payment until the full payment of the

loan at the end of its term. Sample Amortization Schedule is

shown on Attachment V.9.

7. Collateral/Security Documents

The collateral or security documents are executed to accompany credit

agreements. These are, in effect, accessory contracts that cannot exist or

stand-alone without the principal lending documents.

7.1. Real Estate Mortgage (REM)

A contract by which a client or third party mortgagor secures in

favor of LBP Leasing the fulfillment of principal obligation

subjecting as security immovable (real) properties or real rights

over them in the event the principal obligation is not fulfilled at the

time stipulated. A sample REM is shown in Attachment V.10.

7.1.1. The encumbrance shall be duly registered with the

Register of Deeds (RD) of the province or city where the

property is located, and annotated at the back of the title.

The description of the real property and improvements

thereon shall be indicated in the REM contract.

7.1.2. Only 1st REM is allowed. If REM over a property that is

subject to other superior lien is accepted as collateral, this

must be set forth in the proposal and approval.

7.1.3. As a general rule, the full amount of loan/lease exposure

shall be covered by REM, unless the approval provides

that only a specific amount is to be secured. In this case,

a lower amount than the total exposure may be covered

and registered.

7.1.4. Prior to the registration/annotation of REM, updated real

estate tax receipt (RETR) and tax clearance of real

properties and improvements offered as collateral shall be

submitted to LBP Leasing. RETR shall be submitted yearly

as long as the loan is outstanding.

7.1.5. Likewise, a Certificate of Non-Tenancy and Certification

that collateral lot is not covered by CARP (for lots

exceeding 5 hectares) shall be submitted for lands

classified or declared as agricultural.

7.2. Mortgage Trust Indenture (MTI)

A type of mortgage given to a trustee for the purpose of securing

numerous creditors.

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7.3. Chattel Mortgage (CM)

Similar to REM, except that the subject is chattel or personal

property.

7.3.1. The CM must be registered with RD in the province or city

where the owner resides and the mortgaged chattel is

located or ordinarily kept. In case of motor vehicle, the

mortgage must be further registered with the Land

Transportation Office (LTO). The chattel or personal

property, including the serial number or other

identification marks, shall be described in the contract.

Other movable properties shall be registered in

appropriate government agencies when required. In case

of marine vessels or other sea faring vessels covered by

the CM, it is sufficient that the mortgage be registered

only in Maritime Industry Authority (MARINA).

7.3.2. In the case of crops grown on a piece of land, if the crops

and land belong to the client, a REM shall suffice.

However, if the land is not owned by a client (e.g.,

borrower is just a lessee), a CM on the crops shall be

executed.

7.3.3. The loan amount of the chattel or personal property shall

be indicated in the CM contract and registered with the

ROD.

7.3.4. The CM shall be supported by original copies of the duly

encumbered Certificate of Ownership. A sample CM is

shown on Attachment V.11.

7.4. Assignment of Receivables

A bilateral contract whereby one person transmits to another his

rights, title, interests and actions against a third person either by

way of payment or as a security.

7.5. Joint and Several Signatures (JSS)/ Comprehensive Surety

Agreement (CSA)

Binds the key officers and management solidarily or severally with

the principal borrower making them liable to LBP Leasing in case

of default/non-payment due to misappropriation, fraud,

mismanagement, etc.. The CSA aims to make the key

officers/management jointly liable to loan/lease defaults due to

causes other than force majeure.

CREDIT MANUAL

1



7.5.1. As a general rule, the CSA shall be required for all types of

credit facilities. The majority of officers and management

shall be required to execute a CSA. The CSA must be

updated regularly (every time there are changes in the

Board of Directors who signed the agreement) by

requiring the new set of officers to execute the

agreement. It shall be the AOs who shall ensure the

updating of the CSA, particularly the term loans. If the

surety/officer is married, the spouse shall also sign the

CSA.

7.5.2. The names of the signatories of the CSA shall be specified

in the collateral/security box of the CFP. Should there be

exemption from the list of individuals required to sign in

the CSA, said exemption should be stated in terms and

conditions of the CFP. The net worth of individuals

signing the CSA shall likewise be indicated, which shall be

supported by a Notarized Statement of Assets and

Liabilities. A sample CSA is shown on Attachment V.12.

D. FACILITY SPECIFIC GUIDELINES FOR AVAILMENTS

1. Availment on Leasing Facilities

1.1. Availment shall be covered by approved availment memo.

1.2. Asset documents such as Sales Invoice, Delivery Receipt, and

other related documents (Original) shall be submitted.

1.3. For second-hand equipment, Appraisal Report shall be submitted

which shall serve as the basis of the asset cost.

1.4. All other documents as required in the Notice of Approval shall be

submitted.

1.5. Releases may be made in the following manner:

1.5.1. One-time/lump sum release

a. For acquisition of machinery/equipment and motor

vehicles, upon verification that technical

specification of delivered items are the same as

those indicated in the pro-forma invoice and they

are in good running condition.

b. For sale and leaseback of lot and building, upon

submission of Appraisal Report and ownership on

the TCT and TD are transferred to LBP Leasing.

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1



1.5.2. Partial release

c. Allowed for projects whose approved drawdowns

were based on percentage of completion.

Availment shall be based strictly on drawdown

schedule.

a. Prior to releases, LBP Lease appraiser shall make a

validation/inspection report.

b. For imported equipment, validation/inspection to

validate the conformity with approved

specifications shall be made upon arrival.

2. Availments on Fixed Asset Financing/Permanent Working Capital

Financing

2.1. Availment shall be made strictly in accordance with the approved

drawdown schedule.

2.2. For purchase of machinery/equipment, proceeds shall be released

upon verification of delivery and registration in the name of the

borrower. Inspection, test-run and acceptance by borrower shall

be undertaken prior to loan release.

2.3. Borrower’s equity shall be in place before a loan release is made.

2.4. The approved required collateral cover should be maintained at all

times.

2.5. Prior to release, LBP Lease appraiser shall make a

validation/inspection report. However, releases can be made prior

to inspection/appraisal especially for brand new equipment.

2.6. For imported equipment, inspection to validate the conformity with

approved specifications shall be made upon arrival.


submitted.

3. Availments on Working Capital Financing

3.1. Availment from the credit line may be allowed at any time and for

any number of times from the date of its approval until expiry

date, provided the total outstanding availment does not exceed

the approved line.

3.2. Availment from the credit line should be disallowed if the Account

Management Group notices a material deterioration in the ability

of the borrower to meet his loan/lease obligations.

3.3. Availment shall be covered by approved memo.

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1



3.4. For Receivables Financing, Purchase Order and/or Sales Invoice

shall be submitted (Certified True Copy by the Account Officer).

3.5. For Receivable Discounting, checks for discounting shall be

submitted (Original).


submitted.

E. RECEIPT AND MAINTENANCE OF CREDIT DOCUMENTS

1. All original documents related to each availment shall be reviewed and

maintained by the Account Servicing Group (ASG).

2. Exceptions, deviations or deferrals from standard terms and conditions

shall be subject to approval by the original approving body. This may

include instances where the transfer of title is in process and may be

completed in 3 months, provided no legal impediment exists to the

transfer, and the Deed of Sale is submitted to LBP Leasing.

3. Approval of exceptions by the original approving body must be secured

prior to the execution of Deed of Undertaking by the borrower.

F. RELEASE OF COLLATERALS AND PREPARATION OF RELATED

DOCUMENTS

1. Cancellation of mortgages and release of collateral are allowed upon full

payment of the loan/lease, including other attendant obligation such as

insurance, real estate taxes, etc. advanced by LBP Lease.

2. Release of mortgages, guarantees, and other documents after the full

payment of the loan/lease shall be approved by the President, consistent

with the CASA provisions.

Please refer to Attachment V.13 for the sample format of Request to

Borrow/Release Securities.

CREDIT MANUAL

1


Credit Administration 48

VI. CREDIT ADMINISTRATION AND ACCOUNT MONITORING

Credit administration and account monitoring refer to proper provision of credit

support, control systems and other practices necessary to manage outstanding risk

assets. Timely repayment of obligation by a client is an indicator of good credit

administration.

A. PROCESS FLOW


CREDIT ADMINISTRATION

Account Monitoring


Ac

co

un

t M

an

ag

em

en

t G

rou

p

Credit Folders Visit client

regularly

Call Report

AMG Head/

President

File

Business and

Industry

development

Monitor business

development

Incident Report

Business reports

and newsIncident Report

Documentation

and Admin Unit

Certificate of Full

Payment

Undertake account

settlement

activities

Cancellation of

Mortgage Client

Release of Hold-

out

Client Feedback

Survey



Account Monitoring


Ac

co

un

t M

an

ag

em

en

t G

rou

p

Documentation &

Admin Unit

AMG Head/

President

Monitor

compliance with

approved post-

release

requirements

Monitor payments

Monitor

submission of

Periodic reportorial

requirements

Client

Credit Folders

Client

File

Reminder letter to

client

Complied?

Periodic

Documentary

Requirements

Monitor compliance with

terms and conditions of

approval

Annual Loan

Review Report

Updated credit

folderYES

NO

File

AMG Head/

President

Transmittal report

and submitted

documents

Incident Report

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Central Liability Monitoring and Billing


Do

cu

me

nta

tio

n a

nd

Ad

min

istr

ati

on

Un

it

Credit

Implementation

Implementation

Memo

Prepare

subsidiary

ledger

Subsidiary

Ledger

Official ReceiptTreasury Servicing

Unit

Client/AMGPrepare billing

statement

Billing

Monthly ReportsManagement

Prepare journal

entries

Update

Subsidiary

Ledgers

Journal VouchersJournal

Voucher

Recording

Certificate of Full

Payment AMG

File



Document and Collateral Administration


Do

cu

me

nta

tio

n a

nd

Ad

min

istr

ati

on

Un

it

Credit and Legal

Documents

Updated security

folder

File

Account Officer/

Account Assitant

Monitoring and filing of

periodic submissions

of documentary

requirements for

collaterals

Periodic

Documentary

Requirements

Credit

Documentation

and Availment

Implementation

Memo Check

completeness

Set-up security

folder

Security folder

Post collateral

details for

monitoring

Collateral

database

Safekeeping and

monitoring of

collateral

document

movement

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Insurance Monitoring


Do

cu

me

nta

tio

n a

nd

Ad

min

istr

ati

on

Un

it

Check and post

details for

monitoring

LIBI

Updated

Insurance

Database

Request Renewal

of Insurance

Policy

Initial Insurance

Policy

Monitor

insurance

policies for

renewal

Credit

Implementation

Insurance PolicyLIBI

Check and post

details for

monitoring

Prepare

documents for

payments of

premiums

Payment request Disbursement

Process

Prepare billing

for insurance

premium

BillingClient

Monitor clients’

payment of

insurance

premium

File

File



Insurance Claim Assistance and Monitoring


Do

cu

me

nta

tio

n a

nd

Ad

min

istr

ati

on

Un

it

Accident report

and supporting

documentsClient

Updated security

folderFileCheck

completeness of

documents

Inform insurance

company

Assist clients in

claim settlement

Monitor settlement

of claim

Proceeds of claim

settlement Client

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Credit Investigation and Appraisal


AS

G H

ea

d/P

res

ide

nt

Cre

dit

In

ve

sti

ga

tio

n a

nd

Ap

pra

isa

l D

ep

art

me

nt

Credit Initiation

Conduct CIBI

thru credit

bureaus

Inspection Report

or Updated

Appraisal Report

Credit

Investigation

Report

CIBI/

Request

ASG Head/

President

CIAD

Credit

Investigation

Report

Review credit

investigation

report

Reviewed Credit

Investigation

Report

AMG

Periodic

inspection of

equipment and/

or property

Inspection Report

or Updated

Appraisal Report

Review appraisal

report

Reviewed

Appraisal Report

Account

Monitoring

Account

File

Periodic

updating of

bank checkings

Updated bank

checking report

Documentation

and Availment

Request for

Registration of

MortgageRegister

mortgage

ASG Head/

President

Registered

mortagageDAU/Account

Officer

B. MAJOR AREAS FOR CREDIT ADMINISTRATION AND ACCOUNT

MONITORING

1. Compliance to Terms and Conditions

1.1. The Account Officer shall ensure that availments under the

approved credit facilities conform to the terms and conditions

stipulated in the approved Credit Facilities Proposal (CFP).

2. Collection of Loan Amortization

2.1. Prompt Payment of Accounts - All outstanding lease/loans must be

monitored closely to ensure prompt payment at maturity of the

amortization and any other charges or expenses associated with

the transaction.

2.2. Collection of Past Due Obligations - The Account Officer should

promptly handle past due obligations for collection. Remedial

actions should be promptly instituted to keep the account in

current status.

3. Compliance with Key Covenants

3.1. Lease transactions and financing facilities must be monitored

periodically to ensure compliance with key covenants, repayment

schedule, and other terms and conditions governing the facility.

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Call reports should be prepared to record the result of account

monitoring.

4. Periodic Submission of Requirements

4.1. Lessees/ Borrowers with outstanding credit facilities or availments

with LBP Lease shall submit the documents that are required on a

periodic basis, as stipulated in the lease/loan agreement. The

documents include, but are not limited to audited financial

statements evidencing the current financial performance and

condition of the business, the real estate tax receipt, business

permits, etc.

4.2. In the case of cooperative accounts, submission of financial

statements shall be made once a year unless otherwise specified

in the terms and conditions of the credit facility.

4.3. To expedite renewal of lines and administration of account, the

Account Officer should closely monitor the following:

a. Availability end dates for credit lines; and

b. Submission of Financial Statements by borrowers.

5. Monitoring of Industry Situation

5.1. Industry and market developments shall be regularly monitored

and the Account Officer should evaluate the impact of any

development in the industry on the lease/loan account. If the

industry development signals a potential problem, a client call to

discuss the issue with the lessee/borrower shall be conducted as

soon as possible.

6. Conduct of Client Calls

6.1. The Account Officer shall conduct and document results of client

calls and project inspection via call reports. Information necessary

to properly evaluate the status of the client and the project should

be captured in the call report.

6.2. Frequency of Client Calls

Client calls shall be conducted in the following frequency:

Type of Account Frequency of Client Call

Government Accounts Minimum of once every semester

Corporate Accounts Minimum of once every semester

SME Accounts Minimum of once every semester

Financial Institution Accounts Minimum of once every semester

Cooperative Accounts Within 1 months after release and

every 3 to 6 months thereafter

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6.3. For classified accounts, client call should be done more often.

7. Inspection of Supporting Securities File

7.1. Supporting securities shall be subject to periodic

inspection/appraisal by the internal Inspector/Appraiser to validate

the existence/adequacy of the supporting collateral vis-à-vis

outstanding risk.

8. Appraisal/Inspection of Collaterals/Leased Assets

8.1. Periodic inspection and appraisal of leased asset and supporting

collaterals must be done to validate the condition/existence and

adequacy of collateral vis-à-vis the outstanding risk, respectively.

8.2. The appraisals/inspection shall be performed using the following

schedule:

8.2.1. For new loans/leases, credit line renewal, and

restructuring, date of appraisal reports shall not be more

than six (6) months prior to approval of transaction;

8.2.2. For properties offered under dacion and/or compromise

settlement and redemption of foreclosed properties,

appraisal reports should not be more than three (3)

months; and

8.2.3. For restructuring of loans exceeding P5.0 Million, the

appraisal of collaterals should be done by an independent

appraisal company accredited by Bangko Sentral ng

Pilipinas (BSP).

8.3. Periodic inspection and appraisal of financed equipment and/or

supporting collaterals must be done to validate the adequacy of

collateral vis-à-vis the outstanding risk.

9. Credit and Background Investigation

9.1. All Credit Investigation reports shall not be more than one year

(12 months) prior to approval of transaction or during line

renewal.

9.2. Hereunder is the matrix of the schedules for the updating of

inspection/appraisal and CI subject to the conditions stated below:

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Type of Account

Frequency

Appraisal

Credit Investigation

Working

Capital

Financing

Lease/Fixed

Asset

Financing

Government

Accounts

Two years after date

of last appraisal Once a year Once a year

Corporate

Accounts



SME Accounts Two years after date


Financial

Institution

Accounts



Cooperative

Accounts



9.3. Updating of inspection and appraisal shall be done every two (2)

years after the date of last inspection/appraisal provided that the

account is in current status. The Account Officer shall request for

inspection and appraisal once an account becomes past due. The

Account Officer may also request earlier appraisal if required for

additional facilities or renewal.

9.4. All classified accounts including restructured and items in litigation

shall be subject to Annual inspection and appraisal;

9.5. Marine vessels shall be subject to Annual inspection;

9.6. The Account Officer shall prepare the appropriate recommendation

for approval in case the updating of appraisal will be endorsed to

accredited appraisal company of LBP Lease and that the appraisal

fees will be shouldered by LBP Lease.

C. ANNUAL REVIEW OF ACCOUNTS (TERM LOAN REVIEW)

1. A systematic procedure should be in place to ensure periodic and timely

review of the credit and its collateral and security.

2. The Account Officer shall conduct an annual credit review of facilities with

tenor that is more than three years to assess and monitor conditions of

existing credit facilities granted. The following shall be exempted for the

review:

2.1. Financing facilities for government accounts; and

2.2. Financing facilities for permanent working capital

Please see Annex VI.1 for the Guidelines in the Conduct of Credit Review

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D. CREDIT FILE MAINTENANCE

1. Credit Folders

1.1. Credit folders must be set up and maintained for each borrower

for the immediate reference and guidance of LBP Lease officers,

particularly the Account Officers. These are the AMG Client’s

Master and Facility Folders and ASG’s Security Folder and

Availment Folders.

1.1.1. The AMG folders contain original of all credit file

documents. On the other hand, the security folder and

availment folder of ASG also contain the original copies of

all documents.

1.1.2. The AMG folders are used and accessed for the day-to-

day operation of the Group, while the Security folder and

Availment folder are kept in the Secured File Room of the

Account Servicing Group.

1.2. It is the responsibility of the Account Officer to ensure that credit

folders under his responsibility are kept in locked cabinets at the

close of each business day. The Account Officer shall maintain

order in the filing of credit folders.

2. Credit Files

2.1. Credit files refer to all the documents that are related to the

account. These shall include, but not limited to records of LBP

Lease’s past experience with the client, the financial statement

furnished by the lessee/borrower, the credit facilities proposals,

financial projections, business background information, CIR,

appraisal report, call reports, inspection reports, business

registration and other permits, real estate tax receipts. A separate

file for the insurance policy and LTO CR/OR shall be maintained by

the Documentation and Administration Unit in the Account

Servicing Group for safekeeping and monitoring of renewals.

2.1.1. All photocopied documents submitted by the client (e.g.

Articles of Incorporation, Corporate By-Laws, etc.) should

be stamped “Certified True Copy” upon presentation of

the original copy and authenticated by the Account Officer

by signing over his/her printed complete name and the

date when he/she signed the documents, upon

presentation of the original copy.

2.2. The credit files provide Account Officers a convenient reference

about the basic information on the subject, and a history of the

credit relationship with the borrower.

CREDIT MANUAL

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2.3. Information related to the account found in newspaper clippings

may be filed in the AMG folders.

3. Access to Credit Folders and Files

3.1. Credit folders and files must be treated as confidential and only

authorized personnel (those involved in credit and senior officers)

may have access to these files.

3.2. Access to credit files/folders by Account Officers or other officers

(e.g. auditors, legal officers, etc.) shall be against proper receipts

as approved by the AMG Group Head.

3.3. Credit folders and files are not to be taken out of LBP Lease

premises without the approval of the AMG Group Head. In the

case of securities and availment folders, this shall be subject to

the approval of ASG Group Head.

3.4. The AMG Group Head and Documentation and Administration Unit

of ASG shall ensure that borrowed folders are returned on time

with no single file missing.

3.5. Credit folders and files sent via messengers or people not

connected with LBP Lease should be placed in sealed envelope.

4. Maintenance/Culling/Retention Period

4.1. The documents in the credit folders must be reviewed and

maintained in good order. For immediate access to complete and

organized information, Account Officers and Documentation and

Administration Unit shall arrange their respective credit folders and

retain the documents until these documents are ready for

disposal.

4.2. The Working Files of the Account Management Group shall be

disposed 5 years after the full-payment/settlement of the account.

The Security Files of the Account Servicing Group shall be

disposed 5 years after the full-payment/settlement of the account.

4.3. Where materials sent to credit files do not have a defined

retention period, the material shall be sent back to the Account

Officer who must stipulate the retention period.

4.4. Before disposal, the Credit Officer shall pull out basic legal

documents from the file and retain these documents in the

Secured File Room. These documents are as follows:

Client’s Corporate Papers (SEC Reg. Cert., Articles &

By-Laws)

Master Lease Agreement/Loan Agreement

Lease Schedule/Promissory Note

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Credit Facility Proposal (CFP)

Notice of Approval

LBP Lease’s Board/Excom Resolution

Client’s Board Resolution/Secretary’s Certificate

Memo Recommendation & Other Memo Approvals

Certificate of Full Payment

Deed of Sale/Deed of Transfer

Cancellation of Mortgage

4.5. For the Credit Folders, data should be subdivided under Legal

Documents, Recommendation/Approval, CIBI, Corporate Papers,

and other headings as required. Only documents absolutely

crucial to the credit shall be filed in the folder. All operational and

business matters shall be filed in a separate working paper.

4.6. Culling shall be done at least once a year. The Account Officer

and the Credit Officer shall affix his initial and date on the right

side of the cover flap to indicate that this has been done.

5. Contents of the Credit Folders

5.1. AMG Client’s Master Folders

5.1.1. AMG Client’s Master Folder 1

Division Contents

A. Recommendations and

Approvals

Credit Facility Proposal (CFP)

Special Transaction Offering

Tickets (STOT)

Application Cover Sheet (ACS)

LBP Lease ExCom / Board

Resolutions

Conformed Notice of Approval

Other Memo Recommendations

B. Call Reports and

Correspondences

Call Reports

Incident Report

Other Correspondence

C. Credit Checking and

Appraisal Reports

Credit / Bank / Trade Checking

Safe-T-Net Report (checking of

multi-financed equipment)

Court Case Verifications

Clearances / Affidavits of Denial

Price Validation

Appraisal Report on Collaterals

D. Legal Documents Master Lease Agreement

Term Loan Agreement

Short Term Credit Line

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Division Contents

Agreement

Receivable Financing

Agreement

Receivable Discounting

Agreement

Memorandum of Agreement

Client’s Board Resolution /

Secretary’s Certificate

E. Collateral Documents Surety Agreement – SALN / ITR

Real Estate Mortgage (REM)

Transfer Certificate of Title

(TCT)

Condominium Certificate of Title

(CCT)

Tax Declaration

Real Estate Tax Receipt (RETR)

Chattel Mortgage (CM)

LTO Certificate of Registration

(CR) & Official Receipt (OR)

Money Placement with

Landbank

F. Corporate Papers SEC/DTI/CDA Registration

Certificate

Articles of Incorporation /

Cooperation

By-Laws

Company Profile / Basic

Business Information (BBI)

General Information Sheet

List of Stockholders & Officers

News clippings about the client

/ industry

5.1.2. AMG Client’s Master Folder 2

Division Contents

A. Business Permits and

Licenses

Mayor’s Business Permit

Other Permits & Licenses

B. Financial Statements Audited Financial Statements

Notes to Financials

Cash flow Statement

Projections

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Division Contents

Income Tax Returns (ITR)

5.2. AMG’s Facility Folders

Facility Contents

Leases Approved Availment Memo

Client’s Letter of Intent

Lease Availment Checklist

Payment Order

Implementation Memo

Master Lease Agreement

Lease Schedule

Disclosure Statement

Amortization Schedule

Deed of Sale

Guarantee Statement

Certificate of Acceptance

Insurance Quotation, Payment

& Coverage

Inspection Report

Price Validation (brand new

equipment)

Appraisal Report

(used/reconditioned equipment)

Acknowledgment Receipt of

Postdated Checks

Repricing Notice

Working Capital Financing Approved Availment Memo


STCL Availment Checklist

Payment Order

Implementation Memo

Short Term Credit Line

Agreement

Promissory Note


Payment Schedule

Financed Purchase Orders /

Sales Invoices / Contracts

Price / Purchase Order

Validation


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Facility Contents

& Coverage (if applicable)


Postdated Checks

Repricing Notice

Fixed Asset Financing Approved Availment Memo


Term Loan Availment Checklist

Payment Order

Implementation Memo

Loan Agreement

Promissory Note


Amortization Schedule


& Coverage

Inspection Report


equipment)

Appraisal Report

(used/reconditioned equipment)


Postdated Checks

Repricing Notice

5.3. Security File Folders

Division Contents

Legal Documents Master Lease Agreement/Loan

Agreement

Surety Agreement (JSS)

Statement of Assets and Net

Worth

Receivable Discounting

Agreement

Receivable Financing

Agreement

Floor Stock Financing

Agreement

Memorandum of Agreement

Real Estate Mortgage

Transfer Certificate of title

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Division Contents

Tax Declaration

Real Estate Tax Receipt

Chattel Mortgage


(marked “Encumbered”

Recommendation/Approval Memo Recommendation

Credit Facility Proposal

Notice of Approval (duly

confirmed by Lessee/Borrower)

LBP Lease Board/Excom

Resolution

Client’s Approval Secretary’s Certificate

Board Resolution

Specimen Signature Cards

Corporate Papers SEC/CDA/DTI Certificate of

Registration

Articles of Incorporation

By-Laws

Other Permits and Licenses

List of Officers & Stockholders

(certified by the Corporate

Secretary)

Financial Reports Income Tax Returns

Audited Financial Statements

(for initial availment and at the

time of restructuring only)

5.4. Availment Folders

Division Contents

Asset Documents Sales Invoice/Deed of Sale

Delivery Receipt

Warranty Certificate

Affidavit of Ownership

Guaranty Statement


Bill of Materials (for building

construction)

Lot Plan

Location Plan/Vicinity Map

Transfer Certificate of Title

(TCT)

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Division Contents

Tax Declaration

Real Estate Tax Receipt

Certificate of Occupancy

LTO CR & OR marked

“Encumbered”

Appraisal Report on Collaterals

(for initial availment only)

Availment Documents Approved Availment Memo

Confirmation/Availment

Request

OR for Security Deposit

Purchase Order


& Coverage


equipment)

Proforma Invoice

Other Permit and Licenses, if

applicable

Appraisal Report (for initial

availment only)

Inspection Report (for initial

availment only)

Certificate of Acceptance

5.5. Care should be taken that all unfavorable information is

permanently filed in the credit folder under its

corresponding/appropriate section.

6. Credit Disposition After the Retention Period

6.1. The Account Officer and Credit Officer shall be responsible in

forwarding for storage or safekeeping of all culled materials, and

the disposition of same after the retention period has elapsed.

6.2. Culled materials shall be retained in the respective storage rooms

of the Account Management Group and Account Servicing Group

until these are ready for disposal.

E. COLLECTION SYSTEM

1. All outstanding leases/loans must be monitored closely to ensure prompt

payment at maturity of the amortization and any other charges or

expenses associated with the transaction.

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2. The Account Officer should handle collection and regularization of

potential problematic accounts with target dates.

3. Collection/Demand Letters

3.1. For credit lines with principal payment at maturity and/or

amortized facilities with balloon payments, one (1) month before

maturity of lease/loan amortization, the Account Officer should

send a Statement of Account requesting the borrower to pay its

maturing obligation. To ensure prompt payment, a follow-up call

shall be made to ensure collection. Refer to Attachment VI.1 for

samples of Reminder and Follow-up letters.

3.2. Follow-up collection letters should inform, motivate, and command

the borrower to pay. However, tact and politeness, the

watchwords in correspondence writing, must always be present.

3.3. When an account is not paid on due date, the Account Officer

should send collection letters, via registered mail, prior to referral

to Legal Officer in accordance with the following schedule:

3.3.1. First collection letter shall be sent by the officer/employee

handling the account, as soon as the account is in arrears,

i.e., the lessee/obligor defaults on his amortization or a

portion thereof.

3.3.2. If no payment is received within 15 days from the time

the first letter was mailed, second collection letter of more

persuasive tenor shall be mailed by the officer/employee

handling the account.

3.3.3. If 15 days after the release of the second collection letter

has elapsed and still no payment has been received, a

third collection letter, with a more persuasive tenor shall

be sent unless negotiations for settlement is already in

process with the client.

3.3.4. In case of lessees/borrower’s failure to pay within 15 days

from the release of the third letter, a strongly worded

letter should be sent with warning that the case will be

turned over for legal action. Refer to Attachment VI.2 for

samples of collection letters.

3.3.5. The referral to Legal Unit shall show the brief history of

the account, latest statement of account, lease/loan

agreement, collateral documents, and other related

lease/loan documents such as PN, REM, CM, etc.

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3.3.6. Appropriate legal action shall be pursued against the

lessee/borrower if no payment is received within 15 days

from the time the final demand letter is mailed. Refer to

Attachment VI.6 for sample of demand letter.

3.4. In addition to letters, collection may be made via telephone. This

requires the following:

3.4.1. Good working knowledge of credit

3.4.2. An organized call itinerary

3.4.3. Adequate logistical material such as single line phone,

pencils, writing pad, etc.

3.4.4. The ability to control and guide the conversation along the

lines you want.

3.4.5. An understanding of people

3.5. For past due accounts, the Account Officer shall prepare a Plan of

Action Sheet (Refer to Attachment VI.4) to monitor the activities

undertaken on the account.

F. APPLICATION OF PAYMENT

1. The application of payment shall be in the following order:

1.1. Advances (insurance, etc);

1.2. Penalty;

1.3. Interest on loan;

1.4. Capitalized interest and other charges; and

1.5. Loan Principal

2. The above order of payment should be stipulated in the lease/loan

agreement and shall be applied first on obligation which is onerous to the

borrower/client.

3. For long past due accounts whose collection/repayment is doubtful and/or

legal cases has been filed payments shall be applied to the principal

portion of the obligation upon recommendation of the Account Officer and

the Legal Servicing Unit. No income shall be recognized from the

transaction until the principal exposure is recovered.

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G. PENALTY

1. Penalty Rates

The following penalty rates shall be applied:

Facility Penalty Rates

Leases Three percent (3%) per month to start on the day

after the due date of the lease amortization up to

the date of settlement.

All other credit

facilities

Two percent (2%) per month to start on the day

after the due date of the loan amortization or lump

sum payment up to the date of settlement.

2. Computation of Penalties

Accounts shall be charge with penalties in accordance with the prescribed

penalty rates. Penalty charges shall be computed as follows:

2.1. For amortized facilities (leases, term loans, term facilities with

interest payments etc.), the penalty shall be based on the unpaid

amortization due;

2.2. For credit line facilities, penalty charges shall be computed based

on the unpaid principal and interest on the maturity date of the

particular availment. Should the particular availment require

periodic interest payments before maturity date, penalty charges

shall be computed on any unpaid interest payment when due.

2.3. For accounts declared as “due and demandable” by acceleration,

penalty charges shall be based on the total outstanding principal

reckoned from the day immediately after the notice/demand letter

(declaring the account “due and demandable”) is served to the

borrower up to the date of settlement or the date a work out

arrangement (restructuring, payment arrangement, etc.) has been

approved. Thus, for account that are declared “due and

demandable” by way of acceleration, the total penalty charges

shall be the sum of penalties (based on arrearages) incurred prior

to the receipt of the demand letter, and the penalty charges

(based on outstanding principal) incurred from the date

immediately after the notice/demand letter is served up to the

settlement date or the date a work out arrangement

(restructuring, payment arrangement, etc.) has been approved.

3. Waiver of Penalties

3.1. Full or partial, absolute/conditional waiver/condonation of

penalties shall be allowed under meritorious cases and subject to

the approval of the Approving Authorities.

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4. Approving Authorities

4.1. Approval of full or partial waiver of penalties, whether absolute or

conditional shall be subject to the following approving authorities

unless otherwise provided:

Amount of Penalty Charges Approving Authority

Up to P25,000.00 President

Over P25,000.00 up to P50,000.00 Credit Committee

Over P50,000.00 up to P200,000.00 Executive Committee

Over 200,000.00 Board of Directors

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Problem Accounts and Remedial Management 67

VII. PROBLEM ACCOUNTS AND REMEDIAL MANAGEMENT

A. PROBLEM RECOGNITION

1. GENERAL GUIDELINES

Each problem account may have many different variables which would

demand individualized treatment. Some helpful guidelines are presented

below for handling problem accounts;

1.1. Account Officers should be thoroughly familiar with the account by

studying the credit folders.

1.2. Financial analysis using the client’s latest financial statement

should be done with special emphasis on the liquidity and solvency

positions.

1.3. Ascertain if credit and security documents are complete and in

order.

1.4. Discuss problem account with key people and officers of the

borrower.

1.5. Regular project visits shall be conducted by the Account Officer

and shall be supported by the standard Call Report (CR). Visits

shall be conducted more on accounts that have shown inherent

weaknesses or signs of deterioration until operations normalize.

Frequency of visitation shall depend on the level of risks and the

course of action to be undertaken. These visits shall be conducted

to:

1.5.1. Ensure that the terms and conditions are complied with.

1.5.2. Determine if there is a need for project re-designs to

ensure viability of the project

1.5.3. Determine condition of the leased assets.

1.5.4. Monitor progress of project implementation.

1.5.5. Detect early warning signals/potential problems.

1.5.6. Address pressing/immediate problems encountered by the

project.

1.5.7. Identify courses of action for management evaluation

1.6. Review the Corporation’s security position and determine if it can

be improved. Compare collateral position with other creditors.

Conduct ocular inspection of existing collaterals and also conduct

credit investigation/property checking for the debtor and sureties,

if any, to ascertain free assets. Attempt to identify liquid assets

for possible offsetting.

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1.7. Account Officers should study LBP Lease position vis-à-vis other

creditors and decide whether LBP Lease should proceed alone or

together with other creditors.

1.8. If an account is referred for legal action, collection activities shall

be continuously undertaken.

1.9. Explore different courses of action with objective of maximizing

recovery and minimizing the loss.

1.10. Account Officers should timely recognize and act on vital

documentary deficiencies to avoid potential losses to LBP Lease

due to technicalities.

1.11. The AMG should conduct an annual portfolio review of all existing

credit accounts to identify potential problems and institute

corrective measures.

2. Credit Lapses

Generally, lending problems may be caused by lapses in loan packaging

and/or customer and related factors. The Account Officers are advised to

be always conscious of them. The specific causes of these factors may be

as follows:

2.1. Loan Packaging

2.1.1. Neglect of basic criteria and standards

2.1.2. Excessive emphasis on project earnings and setting aside

the capability of client to run the project.

2.1.3. Unclear/unspecific loan purpose thereby allowing

disbursements not related to the project.

2.1.4. Source of repayment is not tangible and quantifiable

2.1.5. Weak second way out

2.1.6. Inappropriate amortization schedule

2.1.7. Giving in to competitive pressures from other financial

institutions resulting to soft credit terms/conditions and

sacrificing standards.

2.2. Customer-Related Factors

2.2.1. Dominance by one or few officers of business/project

operations.

2.2.2. Dependence on one product line resulting to inflexibility to

changes in the market.

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2.2.3. Inability of management to cope with changes in the

industry

2.2.4. Short-term borrowings used for the acquisition of fixed

assets and/or non-earning projects.

2.2.5. Inappropriate timing of projects and inadequate financial

planning

2.2.6. Lack of professionalism of officers and management

2.3. LBP Lease-Related Factors

2.3.1. Reactive Account Officer

2.3.2. Failure to detect early warning signals

2.3.3. Inadequate loan agreement provisions and/or other terms

and condition

2.3.4. Unrealistic high targets on loan releases resulting to

deviation from credit standards

2.3.5. Neglect of basic credit criteria

2.3.6. Lapses in loan implementation/non-compliance to

approved terms and conditions

3. Symptoms of Weakened Accounts

Account Officers shall always take note of the symptoms of weakened

accounts since their early recognition is critical to the formulation of

appropriate courses of action. The following are the early warning signals

of weakened accounts:

3.1. Violation of Loan Agreement Provisions

3.1.1. Diversion of funds/loan proceeds

3.1.2. Lapses in installment payments

3.1.3. Waiver or violation of safeguards against defaults

3.1.4. Pole-vaulting

3.1.5. Unremitted collection

3.2. Internal Problems

3.2.1. Failure to submit financial statements on time

3.2.2. Management shake-up

3.2.3. Emergency/unscheduled BOD reorganization/meetings

3.2.4. Willful default among members

3.2.5. Disappearance of officers/assets

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3.2.6. Non-remittance/rolling-over of collections (for co-ops)

3.2.7. Marked difference between projections and actual

operations

3.2.8. Returned checks to suppliers and creditors

3.2.9. Failure to submit financial statements on time

3.2.10. Loss of cooperation

3.2.11. Labor problem

3.3. Financial

3.3.1. Low sales turnover

3.3.2. Diminishing margin of profitability

3.3.3. Decline in inventory turn-over

3.3.4. Build-up of receivables vs. sales/total assets

3.3.5. Major sales of assets/declining assets

3.3.6. Increase in liabilities

3.3.7. Decline in net worth

3.3.8. Competitive operations

3.3.9. Deteriorating cash position

3.3.10. Increasing collection period

3.3.11. Noticeable rise in inventory costs as a percentage of total

assets without justifiable reasons

3.3.12. Marked changes in trading of product mix

3.3.13. Heavy lines or encumbrance of assets

3.3.14. Marked decline in current assets as a percentage of total

assets

3.3.15. Devaluation or re-appraisal of current assets without

justifiable reasons

3.3.16. Disproportionate increase in current liabilities

3.3.17. Increasing bad-debts

3.3.18. Rising sales, falling profits

3.3.19. Rising operating expenses as a percentage of

sales/revenue

3.4. Non-financial Indicators

3.4.1. Unreasonable request for substantial increase in credit

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3.4.2. Investment in non-related ventures of business

3.4.3. Fast turn-over of employees without justifiable reasons

3.4.4. Problems or squabble among and between stockholders or

owners

3.4.5. Flurry of insolvencies or bankruptcies in the field of

business or area of operation of the debtor or customer

3.4.6. Habitual issuances of bouncing checks

3.4.7. Buying at big volumes and selling at cost or at a loss

3.4.8. Substantial or repeated rumors about the unsatisfactory

credit habits of the debtor

3.4.9. Refusal to pay confirmed arrearages due to alleged

dissatisfaction

3.4.10. Legal trickery of subterfuge such as: fictitious sale or lien

on assets; unjustified incorporation or change of business

status; and absconding with intent to defraud creditors

3.4.11. Sudden unexplainable decrease in manpower

3.4.12. Poor appearance of the office or place of business

3.4.13. Poor maintenance of plant and equipment

3.4.14. Dishonesty of officers or employees of the debtor

3.4.15. New laws adversely affecting a debtor’s business

3.4.16. Insufficiency or lack of insurance coverage

3.4.17. Inability to meet commitments on schedule

3.4.18. Evidence of legal action

3.4.19. Deteriorating relationships with trade suppliers

3.4.20. Loss of one or more financially sound customers

3.4.21. Too much dependence on single or very few buyers

3.4.22. Poor financial housekeeping practices

4. Account Classification

4.1. Procedures on Account (Loan) Classification

4.1.1. The Account Officer shall promptly classify loans in order

to recognize credit deterioration and immediately

implement remedial measures.

4.1.2. The following are the classification of accounts:

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a. Unclassified Accounts

b. Classified Accounts, consisting of the following:

Miscellaneous exceptions-loans and

advances (ME-LA)

Loans especially mentioned (LEM)

Substandard

Doubtful

Loss

4.1.3. The account classification shall be properly disclosed in

the credit proposal.

Please refer to Annex VII.1 for the Guidelines in Account

Classification and Annex VII.2 BSP Circular No. 247 Series

of 2000 for the characteristics and the account

classification indicated above.

4.2. Approval Procedure for Classification/

Reclassification/Declassification of Accounts

4.2.1. Whenever the situation warrants, the Account Officer shall

initiate the classification, reclassification and/or

declassification of accounts using the Account

Classification Memorandum.

4.2.2. The Head of AMG shall review and recommend approval

of the account classification and submit the same for

approval of the President.

4.3. Annual Qualitative Review

4.3.1. Account Management Group shall conduct annual

qualitative review of accounts outstanding as of June 30.

4.4. Setting-up Valuation Reserves

4.4.1. Valuation Reserves shall be set-up as follows:

Classification of Account Valuation

Reserves

Loans Specially Mentioned (LEM) 5%

Substandard

Secured

Unsecured

6% to 25%

25%

Doubtful 50%

Loss 100%

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4.4.2. Amount of Valuation Reserves shall be accrued monthly

and booked as Provision for Losses. The President shall

approve, through the recommendation of the AMG and

ASG Head shall approve the final adjustment of valuation

reserves at year-end based on qualitative review.

5. Loan Impairment Process

5.1. Conduct of annual assessment of loan impairment as required by

the PFRS shall be done every September 30.

5.2. Assessment of impairment of accounts may be done individually or

collectively.

5.3. Reports from Account Officers on the assessment shall be

submitted to ASG Head for review on or before October 30. After

the review the assessment is endorsed to the President for

approval.

Please refer to Annex VII.3 for Specific Guidelines on Loan

Impairment.

6. Past Due Loans

6.1. As a general rule, past due accounts refer to all accounts in LBP

Lease’s portfolio which are not paid on due dates or where

arrearages have reached 20% of outstanding balance.

6.2. The following are considered as past due accounts:

6.2.1. Loans or receivables payable on demand - if not paid on

the date indicated on the demand letter; or if not paid

within six (6) months from the date of grant, whichever

comes earlier.

6.2.2. Bills discounted and time loans whether or not

representing availments against credit line, if not paid on

the respective maturity dates of the PNs

6.2.3. Total outstanding balance of loans or receivables wherein

installments in arrears thereof have reached the

prescribed minimum arrearages in accordance with the

following schedule:

Mode of Payment Minimum Number of

Arrears in Installment

Monthly 3

Quarterly 1

Semestrally 1

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Mode of Payment Minimum Number of

Arrears in Installment

Annually 1

6.2.4. However, when the total amount of arrearages reaches

twenty percent (20%) of the total outstanding balance of

the loan/receivable shall be considered as past due,

regardless of the number of installment in arrears.

6.2.5. For modes of payment other than those listed above (e.g.,

daily, weekly, or semi-annually), the entire outstanding

balance of the loan/receivable shall be considered past

due when the total amount of arrearages reaches ten

percent (10%) of the total loan receivable balance.

6.2.6. For quarterly, semi-annual and annual installments, the

account shall be considered past due if one amortization is

not paid in full on due date.

6.2.7. For monthly installments, the account shall be considered

past due if the number of arrears is three installments of if

the total amount of arrearages reached 20% of the total

outstanding balance, whichever comes first.

6.2.8. Past Due accounts recommended for write-off should be

properly evaluated and supported by negative status

reports CI/BI, Asset Verification, AO call report among

others

7. Non-Performing Loans

7.1. As a general rule, Non-Performing Loan (NPL) shall refer to

unamortized loan accounts whose principal and/or interest is

unpaid for thirty (30) days or more after due date. For amortized

term facilities, after they have become past due in accordance

with existing rules and regulations. This apply to loans payable in

lump sum and loans payable in quarterly, semi-annual or annual

installments, in which case, the total outstanding balance thereof

shall be considered as non-performing; provided however, that

when the total amount of arrearages reaches twenty percent

(20%) of the total outstanding balance of the loan/receivable, the

total outstanding balance of loan/receivable shall be considered

past due, regardless of the number of installment in arrears.

7.2. In the case of loans payable in monthly installments, the total

outstanding balance thereof shall be considered non-performing

when three (3) or more installments are in arrears or when the

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total amount of arrearages reaches 20% of the total outstanding

balance of the loan/receivable, whichever comes earlier.

7.3. Generally, a loan which is restructured is considered non-

performing except for those accounts which will be restructured

for the first time but:

7.3.1. Classified as current at the time of restructuring

7.3.2. Classified as current with proposed capitalized interest

and fully secured with Real Estate Mortgage having a loan

value of at least 60% of the appraised value, provided

that the accruing penalties are fully paid at the time of

restructuring. Otherwise, it shall be considered non-

performing.

7.4. A restructured loan which has been previously restructured shall

be considered NPL and classified, at least, Substandard.

7.5. A restructured loan which has been restored to a performing loan

status shall be immediately considered non-performing in case of

default of any principal or interest payment.

7.6. Restoration of NPL to a performing loan shall be as follows:

7.6.1. Non-restructured accounts considered non-performing

shall be restored as performing loan upon full updating or

payment of arrearages including principal, interest and

other charges.

7.6.2. The restoration to a performing loan of a restructured

loan shall only be done after a satisfactory track record of

payments of the required amortizations of principal and/or

interest has been established.

For this purpose, a satisfactory track record of payments

of principal and/or interest shall mean three (3)

consecutive payments of the required amortizations of

principal and/or interest have been made. However, in

the case of a restructured loan not fully secured by real

estate security or other first class collaterals and the

insured improvement thereon, six (6) consecutive

amortizations of principals and/or interest must have been

made.

7.6.3. The restoration of a loan restructured more than once

shall only be allowed after a satisfactory track record of at

least six (6) consecutive payments of the required

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amortization of principal and/or interest shall have been

established.

B. REMEDIAL MANAGEMENT

1. GENERAL GUIDELINES

1.1. Problem account management shall be managed based on the

following objectives:

1.1.1. Maintenance of a high quality loan portfolio through the

regularization of problematic accounts; correction of

credit/documentation deficiencies; and strengthening

weak credit by upgrading the collateral support;

1.1.2. Introduction of collection efforts with ultimate goal of

collecting interest and full recovery of loan principal;

1.1.3. Provision of optimum protection of LBP Lease’s interest by

instituting timely and appropriate legal or extra-legal

action;

1.1.4. Minimization of write-offs

1.2. The Account Officer shall be primarily responsible for managing

problem accounts, including the following:

1.2.1. Overall account supervision and monitoring;

1.2.2. Early detection of potential problem accounts;

1.2.3. Submission of a comprehensive and time-bounded

remedial action plan; and

1.2.4. Implementation of comprehensive and time-bounded

action plan and strategies to mitigate potential problems.

1.3. The Account Management Group should maintain a system to

periodically assess, monitor, supervise and follow-up account

management activities, including the conduct of regular

review/discussion.

2. Remedial Measures

2.1. Remedial Measures refer to strategies and activities that comprise

an overall rehabilitation plan to help the client meet its maturing

obligations and improve LBP Lease’s chances of recovery.

2.2. The Account Officer shall institute remedial measures when

payment, covenant, representation, insolvency, seizure, cross,

judgment and other events of defaults occur.

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2.3. Events of Default

2.3.1. Payment Default – If the borrower fails to pay any

principal, interests, advances, service chares or any

amount part of the foregoing when due and demandable

under the terms and conditions in the loan agreement and

of the covering promissory notes and/or evidences of

indebtedness and contracts, documents, etc.

2.3.2. Covenant Default – If the borrower shall fail in the due

performance or observance of any of the terms and

conditions, covenants or provisions contained in the loan

agreement and other related documents, contracts and

instruments, including amendments and addenda and if

such failure is capable of satisfactory remedy, the

borrower shall have failed to institute the necessary

remedial measure within the stipulated period after the

borrower shall have been notified in writing of such

default by the lender.

2.3.3. Representation default – If (1) there is any

misrepresentation of facts or error with respect to, or

violations of any of representations and warranties set

forth in the loan agreement and the related contracts,

documents and instruments executed in connection with

the loan, and (2) proceeds of the loan has been

employed, without written approval of the lender, for this

purposes other than those agreed upon with the lender

provided for in the loan agreement.

2.3.4. Insolvency default – If the borrower (1) become insolvent,

bankrupt, or if the borrower shall make general

assignment of its properties and assets for the benefit of

creditors or shall have filed an insolvency petition or shall

be put into forced or voluntary liquidation or insolvency,

(2) apply with any court for the appointment of a receiver,

administrator or liquidator for the borrower, and (3)

unable or admit in writing its inability to pay its

indebtedness.

2.3.5. Cross Default – The borrower fails to pay any amount due

under any other agreement (whether or not written) or

document evidencing securing, guaranteeing or otherwise

relating to any other indebtedness of the borrower or

there is default by the borrower under such agreement or

document for borrowed money and other similar forms of

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financial obligations, the effect of which is to accelerate or

to permit acceleration of the maturity of such

indebtedness.

2.3.6. Seizure default – If any governmental authority shall have

taken any action to condemn, seize or appropriate the

borrower or any substantial portion of the borrower’s

properties or assets or business (either with or without

payment of compensation) which adversely affects the

borrower’s ability to pay its indebtedness.

2.3.7. Judgment Default – Any judgment for money/damages or

fine is entered against the borrower and is not paid,

discharged or fully bonded within certain days after the

date when payment of such judgment is due under

applicable laws.

2.4. In case of default, the Account Officer shall undertake the

following:

2.4.1. Call the attention of the defaulting client through a

document notice;

2.4.2. Work-out arrangements for the purpose of liquidating past

due accounts;

2.4.3. Institute remedial measures to help the client meet its

maturing obligations and improve LBP Lease’s position to

collect the loan;

2.4.4. Initiate the filing of legal case against the client, in cases

when the client ignores LBP Lease’s summons; and

2.4.5. Record and report status of all action/remedial measures

taken on past due loans to management.

2.5. Basic Remedial Options

2.5.1. The main responsibility is to restructure and/or otherwise

collect the problem loan in cash and ideally in full over a

reasonable period of time. Workout is based on mutual

willingness of the borrower to pay and of the creditor to

extend repayment terms. The account has fundamental

problems but can be corrected. Areas to look into a

workout situation include the collaterals, documents,

project viability and other creditors.

The success of the workout situation depends on the

negotiation skills of the AO who needs to convince the

borrower to see things his way and let borrower to see

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things his way and let borrower agree to the desired

courses of action. The basic premise is to protect the

interest of the Corporation. Some basic rules follow:

Know the facts, understand the economic realities

and decide on what you want. Then move fast,

preferably before other creditors do.

Aim for the biggest recovery within the shortest

time possible. Taking losses on problem loans is

a fact of life.

Maximize present value recovery; cash is always

preferred to asset settlement;

When dealing with other creditors, make sure that

no one improves on his present position ahead of

others;

When moving alone, try to move ahead of other

creditors;

Be flexible in dealing with other creditors. You

may also need their help in the future when roles

are reversed.

2.5.2. When Work-out may be pursued

Borrower cooperates, willing to pay and accepts

possible financial sacrifice.

Reason for financial difficulty is legitimate and

curable

Borrower submits a business and financial

rehabilitation plan that proves feasible after

validation and shows adequate debt service,

profitable projected operations, strong demand of

product, capable management and adequate

financial controls

Profitable past track record before financial

difficulties

Adequately secured by good collaterals or

inadequately secured leaving no choice position

No fraud is involved

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2.5.3. Major Work Out Strategies

Restructuring

DESCRIPTION GENERAL GUIDELINES

Generally, any change

in the principal terms

and conditions of the

loan in accordance with

a restructuring

agreement setting forth

a new plan of payment

on a periodic basis

The following are circumstances that

warrant restructuring:

Admission by the borrower that

he can no longer comply with the

present amortization schedule

due to business reverses;

Occurrence of unfavorable

events that are beyond the

control of the borrower and

which will greatly impair the cash

flow or liquidity of the project

like natural calamities, fire, labor

and management problems

As a general rule, loan restructuring

shall be done only if the borrower

still has the capacity to pay his

obligations and needs a set of new

repayment terms. The AMG must

validate the sources of repayment,

the results of which must be

included in the restructuring

proposal.

Specifically, loan restructuring

should be considered only if:

Loan restructuring shall improve

the borrower’s ability to pay his

obligations;

Loan restructuring shall not

involve an increase in exposure,

aside from capitalized charges, if

any;

Loan value of the collateral, as

general rule, shall be enough to

cover the loan to be

restructured, except for agrarian

loan which shall not be strictly

governed by this policy;

Financial interest/corporate

image of LBP Lease shall not be

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prejudiced.

Capitalized charges as a matter of

policy shall bear interest (except for

cooperative accounts).

The real estate security of loans over

P5.0M (based on principal balance)

shall require appraisal of an

independent appraisal company

acceptable to BSP and shall be re-

appraised every year thereafter;

Approval of restructuring proposals

shall be based on CASA and should

be fully documented;

In restructuring, the following shall

be required of the borrower;

Upfront payment equal to

accrued interest, penalty and

account receivable as show of

sincerity and commitment of the

borrower; for unsecured or

partially secured loan, payment

shall be equivalent to 5% of

outstanding loan obligation or to

the extent of the unsecured

portion of the outstanding loan,

whichever is lower;

Written repayment plan to

ensure capability to meet the

loan amortizations under a

repayment term;

Post-dated checks to cover the

amortizations on the principal for

the 1st year of the restructured

loan.

Refinancing


This mode of

settlement is thru

extension of a new loan

The following shall be considered in

refinancing:

Company is viable and market

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or line with major part

of proceeds to be

applied to outstanding

past due loan and any

remaining balance to

be utilized for the

borrower’s project.

continues to exist.

Cash flows still adequate under a

restructured mode.

Collaterals are adequate

Emergency operating/financial

controls are instituted

Use of new loan is

justified/controlled and

monitored.

Borrower enjoys suppliers/other

creditors/government support.

Compromise Settlement


Covers lump-sum

payment either through

cash payment or dacion

en pago and generally

includes condonation of

unbooked interest

and/or penalty charges.

Payment should not exceed six (6)

months, otherwise it becomes

restructuring and should include full

amount of obligation bearing interest

on the principal balance.

Proposal shall be subject to approval

per CASA.

In packaging the compromise

settlement, the following shall be

emphasized:

Inclusion of yield analysis for

cash settlement to show that a

desirable yield on fund exposure

is attained;

Settlement shall bring immediate

reduction of past due level and

cash receipt (for cash payment);

and

Offer of dacion en pago shall be

evaluated vis-à-vis the latest

appraisal of the property which

shall not be more than three (3)

months old on the date of the

dacion approval;

The settlement shall more than

cover the total booked obligation.

Other alternative options should be

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identified, analyzed and presented.

Off-Setting


Involves the provision

by the borrower of

services and/or goods

as loan settlement. The

goods/services shall be

used to liquidate the

borrower’s obligation

with LBP Lease

Goods and services shall pass LBP

Lease’s bidding process for the

arrangement to take effect.

Strengthen Collateral/Credit Position


Involves the securing

of additional collateral

to secure the loan

and/or continuing

Guaranty and/or JSS by

a more viable and/or

acceptable party as

further security of the

loan.

Generally this is done at the time of

restructuring of a past due account

when it is discovered that the collateral

cover is deficient.

Substitution or Submission of Additional

Collateral


Borrower will replace

existing collaterals, or

mortgaged or pledge

additional collaterals in

case the appraised

value of the existing

collateral/s has/have

diminished.

This remedy is resorted to on or

before the loan becomes past due.

(If the loan is already past due, it

usually forms part of the

restructuring arrangement)

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Assumption of Mortgage


Involves the

assumption of

mortgage by a third

party, e.g., a private

individual, partnership,

company cooperative,

etc. wherein he

assumes the obligation

of the borrower.

The third party should pass the risk

asset criteria and other credit

standards of LBP Lease.

Approval of this transaction is based

on thorough evaluation of the credit

worthiness of the party assuming

the obligation.

Reasonable amount of down

payment and/or additional collateral

shall be required. The Appraisal

Report shall be updated to

determine LBP Lease’s collateral

position prior to the approval of the

transaction.

Preferably, all amortizations due

shall be covered by post-dated

checks to be issued upon

implementation.

The transaction shall be covered by:

Deed of Assumption of

Obligation (signed by obligor

and LBP Lease as the obligee);

and

Deed of Sale with Assumption of

Mortgage (signed by the original

borrower as vendor and the

obligor as the vendee with

conformity of LLBP Lease.

These documents shall be

registered with the Registry of

Deeds prior to implementation.

Proposals shall be made via CFP.

3. Liquidation Strategies

3.1. Liquidation options may be pursued if workout negotiations fail.

Sometimes a combination of liquidation and work-out may be

pursued to come-up with a realistic repayment plan. If existing

collateral is insufficient, other assets should be identified as source

of payment later.

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3.2. When Liquidation May Be Pursued

3.2.1. When fraud is involved

3.2.2. When all efforts to collect/restructure have failed

3.2.3. No other sources of payment

3.2.4. Borrower refuses to cooperate/unwilling to pay

3.2.5. Loan is secured with adequate collaterals

3.3. Major Liquidation Strategies

3.3.1. Foreclosure


Procedure by which mortgaged

property is sold upon default of a

mortgagor in satisfaction of

mortgage debt.

Outstanding balance of past-

due loans or loans that have

become due and demandable

shall be transferred to “items in

litigation” upon filing of

collection/foreclosure cases in

court or of the extra-judicial

petition for foreclosure.

The following are included in

the computation of outstanding

balance to be filed for

collection/foreclosure cases:

Penalty and interest on

accounts receivable;

Accounts receivable balance

;

Penalty on loans;

Accrued interest and

interest charges on loan;

Principal loan; and

All related fees.

Expenses incurred in connection

with the litigation proceedings,

including advances for

insurance of foreclosed

properties, shall be booked

under Litigation/Assets Acquired

Expenses.

The AMG shall recommend the

foreclosure of mortgage/pledge

and shall be approved in

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accordance with the CASA. The

mode of foreclosure shall be

evaluated by the AMG in

consultation with the

President/GM.

AMG shall continue to exercise

account management function

over accounts referred for

foreclosure/legal action.

Pledged collaterals shall be the last

to be foreclosed since foreclosure

of the same bars any claim for

deficiency.

3.3.2. Dacion en Pago


Sale of property to the corporation

in full/partial payment of obligation.

LBP Lease should consider

marketability of the property as

well as its proper valuation

Object of the dacion could be

the mortgage collateral or

another property.

Dacion is considered as “sale”

and therefore subject to capital

gains tax, documentary stamp

tax and transfer tax.

It may also involve the

assignment of other assets of

the borrower

If the assets/assigned is/are

insufficient, the dacion en pago

instrument should expressly

stipulate that the borrower shall

pay or is still liable for the

deficiency

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3.3.3. Sale of Mortgaged Assets With or Without Assumption of

Obligation


Involves the sale of the mortgaged

collateral to an interested buyer

and the proceeds applied to the

loan.

When the buyer cannot raise the

entire purchase price, The

Corporation can allow the

purchaser to assume obligation and

pay the Corporation later. The new

obligor should have the capacity to

pay.

3.3.4. Replevin


This is a remedy by which a party

seeks to recover immediate

possession of a personal property

which is the subject matter of

action without waiting for the final

adjudication of the case on the

merits.

The Corporation shall seek approval

for the filing of replevin case and

pay the necessary fees.

3.3.5. Voluntary/Involuntary Bankruptcy

DESCRIPTION

This happens when the borrower have more liabilities than assets and

could not pay its obligations. In the process the court will appoint a

Receiver whose function is to protect the rights of the parties during the

pendency of the case. Voluntary bankruptcy is filed by the borrower in

court while involuntary bankruptcy emanates from other parties like

creditors.

4. Litigation Strategies

4.1. This involves filing of cases in court which involves time and

money. The final decision normally takes time.

4.2. When Litigation May Be Pursued

4.2.1. Account is not secured

4.2.2. Collateral is lost or not worth running after

4.2.3. Mortgage is abandoned and collection suit is filed

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4.2.4. Availability of attachable assets (preferably in cases with

provisional remedy for attachment); and

4.2.5. Sometimes collection suit is filed in hopes of executing

later

4.3. Major Litigation Strategies

4.3.1. Collection Suits (with or without attachment)

This involves filing of collection or sum of money case in

court against the borrower/s and sureties

Steps in filing collection suits/deficiency claims:

Complaint for Sum of Money is filed in court

Summons with copy of complaint is served to the

defendant/s

If no answer is filed, move to declare defendant in

default. Corporation to present its evidence ex-parte.

Thereafter, the case is submitted for decision.

Court may refer the parties to a mediation conference

Trial on the merits

Decision (Subject to appeal of losing party)

4.3.2. Attachment

A provisional remedy by which the property of defendant

is taken into custody of law either at the commencement

of the action or during the progress of the same, as

security for the satisfaction of any judgment that the

plaintiff may recover.

Arises when a writ is issued by the court at the

commencement or progress of an action, commanding the

sheriff or other officers to take custody of the property,

rights, credits or effects of the defendant to satisfy the

demands of the plaintiff.

Some grounds for attachment are:

In an action for the recovery of a specified amount of

money against a party who is about to depart from the

Philippines with intend to defraud its creditors.

In an action against a party who has been guilty of a

fraud in contracting the debt or incurring the obligation

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In an action against a party who has removed its

property or is about to do so, with intent to defraud

creditors.

In an action against a party who does not reside and is

not found in the Philippines on whom summons may be

served by publication.

4.3.3. Deficiency Claims

When proceeds of the foreclosure sale (except for pledge)

are not sufficient to cover all the obligations and expenses

secured, the mortgagee may file a deficiency claim.

Before filing a deficiency claim, other assets that could be

levied later should have been identified earlier to avoid an

empty judgment. Otherwise, the Corporation will not file

a deficiency claim in the absence of leviable asset, unless

the intent is to make leverage with the borrower.

Deficiency claim will not prosper if the insolvent

mortgagor is discharged before foreclosure is terminated

or when foreclosure is effected after termination of testate

or intestate proceedings on the estate of the deceased.

4.3.4. Bouncing Checks

Checks drawn against insufficient fund/no funds.

Two sets of law governing bouncing checks:

Article 315 par. 2(d) of the Revised Penal Code, as

amended – the crime of estafa under this law is a form of

swindling by means of deceit. Under this law, if there is

no deceit, there is no estafa. To satisfy the element of

deceit, the issuance and drawing of the check must be

prior to, simultaneous with transaction between parties.

Batas Pambansa (BP) 22 – This special law was enacted

to maintain the credibility and value of checks as medium

of business. With the enactment of this special law, a

check issued in payment of pre-existing obligation is no

defense. The offense punished is the act of making and

issuing a worthless check or a check that is dishonored

upon its presentation for payment. In case of dishonor,

drawer must be given notice of dishonor and is given five

(5) days to make good the check. Action to file the case

under this special law prescribes after 2 years. Ways of

committing infraction of BP 22 follows:

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The making, drawing or issuance of any check to apply

on account or face value, the drawer knowing at the

time of issue that he does not have sufficient funds in,

or credit with, the drawee bank for payment of such

check in full upon its presentment, which check is

subsequently dishonored for the same reasons, order

the bank to stop payment.

The failure of any person who, having sufficient funds

in or credit with the drawee bank when it makes or

draws and issued a check, shall fail to keep sufficient

funds or to maintain a credit to cover the full amount is

presented within 90 days from the date appearing

thereon, for which reason, the check is dishonored by

the drawee bank.

4.3.5. Swindling/Estafa

This is the commitment of fraud under Article 315 of the

Revised Penal Code.

Means of fraud: With unfaithfulness or abuse of

confidence (1) by misappropriating or converting to the

prejudice of any other money, goods or any other

personal property received by the offender in trust or on

commission, or for administration, or under any other

obligation involving the duty to make delivery of, or to

return, the same xxx or denying having received such

money, goods or other property; (2) by taking undue

advantage of the signature of the offended party in

blank, and by writing any document above such signature

in blank to the prejudice of the offended party or any third

person by means of false pretenses or fraudulent acts

executed prior to or simultaneous with the commission of

the fraud by using a fictitious name, or falsely pretending

to possess power, influence. Qualifications, property,

credit, agency, business, or by means of other similar

deceit (e.g. forged signatures on credit documents; failure

to return borrowed documents; non-existent collaterals;

wrong collaterals).

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5. Other Strategies

5.1. Write-off

These are accounts whose collection recovery is remote after all

efforts have been exhausted (i.e. clean loans and company ceased

to operate or has filed for insolvency proceedings, among others).

Determination of accounts eligible for write-off is a matter of

judgment.

5.2. Suspension of Payment

Suspension of payment is the postponement, by court order, of

the payment of debts of one who, while possessing sufficient

property to cover debts, foresees the impossibility of meeting

them when they respectively fall due.

5.2.1. Who May Petition: Any debtor who foresees the

impossibility of meeting its debts when they respectively

fall due or any creditor/s holding at least 25% of the

debtor’s total liabilities, may petition the proper Regional

Trial Court to have debtor placed under rehabilitation.

5.2.2. Petitioner is required to submit a rehabilitation plan.

5.2.3. Creditor or Debtor shall file a verified opposition to or

comment in the petition.

5.2.4. Court appoints a Rehabilitation Receiver who is tasked to

study the best way to rehabilitate the debtor; it can also

recommend a termination of the proceedings and the

dissolution of the debtor if he determines that the

continuance in business of such entity is no longer

feasible.

5.3. Redemption

This is a transaction through which the mortgagor or one claiming

his rights, by means of payment or performance of condition

reacquires the title to the property subject of mortgage

foreclosure.

5.3.1. In case where the foreclosed is owned by the individuals,

redemption period is one (1) year reckoned from the date

of registration of the Certificate of Sale (COS) with the

Register of Deeds. However, if the realty foreclosed is

owned by juridical entities, the redemption period shall be

until the registration of COS or until three (3) months

from foreclosure date, whichever is earlier. For

land/agricultural land covered by patents, after the

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Corporation consolidates ownership over the foreclosed

properties upon the expiration of the above redemption

periods, the patentee/grantee still has the right to

repurchase the land within a period of five (5) years

reckoned from the time the Corporation consolidated its

ownership thereon. Foreclosed chattels are not subject to

redemption.

5.3.2. Possession of the property shall be given to the

Corporation/purchaser only after the expiry of the

redemption period. If the bank feels the need to

safeguard its interest on the acquired asset particularly

those with valuable improvements and there is a high

possibility of dissipation, the Corporation could petition the

proper court for the possession of the foreclosed property

during the redemption period, through a writ of

possession supported by a bond in an amount equivalent

to the use of the property for a period of 12 months (for

foreclosed properties owned by individuals).

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st Revision – 08.2014

Special Transaction Offering Ticket 93

VIII. SPECIAL TRANSACTION OFFERING TICKETS

A. GENERAL GUIDELINES

1. Special Transaction Offering Tickets (STOTs) will be used for the following

transactions:

1.1. Amendments/deviations from the approved terms and conditions,

including, but only limited to the following:

1.1.1. Extension of line expiry date;

1.1.2. Changes in pricing/interest rate

1.1.3. Re-allocation/establishment of sub-limits

1.1.4. Amendments in the pre-release conditions

1.1.5. Request for increase in line for lines previously renewed

with substantial decrease in amount

1.1.6. Deferment of one or more amortization payments without

change in maturity of exposure

1.1.7. Extension of availment period (maximum of 6 months)

1.2. Partial Release/Substitution of collateral

1.3. Minor revision(s) on the terms and conditions of the existing CFP

that do not require evaluation of the borrower’s financials.

1.4. One Time Transaction

2. Special Transaction Offering Tickets (STOT) should be neatly prepared

and written legibly with all portions/sections completed. The words

“none”, “not applicable”, etc. should be used where applicable.

3. The proposed transaction shall be described in concise, explicit and clear

manner.

4. Outstanding balances must be those as of the month end immediately

preceding date of the offering as shown in the “Date” section.

5. The “Reason for Request/Justification” portion shall contain pertinent

information and explanation that will enable the approving authority to

make clear decision on the proposal.

6. Approval boxes should appear on all pages of the STOT.

7. The financial update on the account must be included and shall indicate,

among others, the key financial indicators i.e. liquidity, profitability and

solvency. The latest financial update (FS), or Certificate of Income and

Employment (for consumer loans), presented in the STOT shall not be

more than 6 months from date of proposal. However, financial update

shall not be required for minor revisions.

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8. CI and appraisal updates shall not be more than twelve (12) months and

2 years at the time of the proposal.

9. Additional conditions or instructions made by the approving authorities

must be clearly stated in the STOT.

10. All changes/amendments in the approved terms and conditions in the

STOT shall be justified.

11. In no case shall extension of line expiry, changes in pricing, re-allocation

of sub-limits, and/or collateral substitution/partial release be granted if

account is past due, except in cases where the Corporation’s position is

enhanced or when transactions proposed in the STOT are part and parcel

of a restructuring or remedial action on the account.

B. TRANSACTIONS REQUIRING STOT

1. Amendments/Deviations from approved terms and conditions, shall be

limited to the following:

1.1. Extension of Line Expiry

1.1.1. As a general rule, no line extension shall be allowed after

the expiry of the original line, except when borrower has

not submitted the documents required for the renewal of

the line; or required documents were submitted too late

to enable the Lending Unit to prepare a line renewal.

1.1.2. Every STOT for line extension, except for Financial

Institutions, shall be accompanied by a written request

from the borrower indicating his intention to renew the

line.

1.1.3. No line extension shall be allowed after the expiry of the

existing credit line.

1.1.4. In highly exceptional cases, request for extension shall

only be granted for a maximum of sixty (60) days,

provided there will be no new availment during the

extension period.

1.1.5. Approving level shall be the same as the original

approving authority.

1.1.6. Line extension shall not involve any increment in the

originally approved credit facility.

1.2. Changes in Pricing/Interest Rate

1.2.1. Interest rate or pricing provision may be amended on a

case-to-case basis depending on the following:

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a. Merits of the project;

b. Potential business that the borrower may bring in;

and

c. Extent of the trade-off in terms of collateral

business.

1.2.2. Pricing structure shall be stated in a specific manner.

1.2.3. Approval of interest rates/pricing, including changes

thereof shall be based on the CASA.

2. Release/Substitution of Collateral

2.1. The borrower shall shoulder all actual expenses in documentation

process, (e.g., cancellation and/or registration of mortgage) for

the release/substitution of collateral.

2.2. The original approving authority shall approve the transaction.

The amount shall be based on the outstanding balance for term

loans and the amount of line for short-term loans.

2.3. Partial Release of Collateral

2.3.1. May be allowed subject to the following conditions:

a. Client has no past due obligations at the time of

release of collaterals;

b. Original Collateral Cover should be maintained.

Any reduction in collateral cover from the original

approval should be clearly stated in the STOT.

c. Prior to partial release, re-appraisal of the

remaining collaterals shall be undertaken if the last

appraisal is more than one year. Government

securities and hold-out on deposit shall be

exempted from prior appraisal; and

d. Releasing a particular collateral will not affect the

value of remaining collaterals

2.3.2. Partial release shall not be allowed where the collateral is

part of the production line, facilities or sites, the

disposition of which would disrupt the normal operations

of the business.

2.4. Substitution of Collateral

2.4.1. Original Collateral Cover should be maintained. Any

reduction in collateral cover from the original approval

should be clearly stated in the STOT.

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2.4.2. Real estate collateral may be substituted only with

another real estate property of superior type than existing

real estate collateral (e.g. commercial to commercial, or

residential to commercial, or residential to residential), or

equivalent against hold-out on deposit and/or government

securities.

a. Location/vicinity (i.e. urbanized & commercial

areas, good topography)

b. Ownership (no encumbrance, few

owners/claimants)

c. Marketability (Commands high value; can easily

dispose)

2.5. Substitution shall not be allowed if the collateral to be substituted

is the project site, or when the collateral is part of the production

line, facilities or sites, and the disposition of which would disrupt

the normal operations of the business.

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Credit Review Process 97

IX. CREDIT REVIEW PROCESS

A. GENERAL GUIDELINES

1. Credit review is an integral part of a total system for managing the credit

portfolio of LBP Lease. The overriding concern is to help develop correct

credit practices and procedures to minimize credit risks.

2. The following are the primary goals of credit review:

2.1. Assess the management of credit risks.

2.2. Identify areas in the credit operation that need improvement and

recommend corrective action.

2.3. Instill awareness and adherence to LBP Lease’s credit standards

and practices.

2.4. Provide inputs for credit policy formulation.

2.5. Provide feedback to senior management on the overall credit risk

assessment.

3. The Internal Audit Unit (IAU) is responsible for undertaking periodic credit

portfolio review.

3.1. Compliance with credit standards based on BSP Rules and

Regulations, Banking Laws, LBP Lease’s credit policies, procedures

and practices, Board Resolutions and the Codified Signing and

Approving Authorities (CASA) Manual will be assessed. The

approved Risk Asset Acceptance Criteria (RAAC) shall also guide

the reviewers, and other credit related policy issuances.

4. Relative to its function, IAU shall conduct the following activities:

4.1. Conduct an annual comprehensive credit review.

4.2. Monitor the compliance to action plans to correct observed

common and major weaknesses. The activity shall be done within

a period of 3 months to 6 months from last review depending on

the gravity and level of risk findings.

4.3. Conduct spot/random checking on lease/loan transactions to

recognize and immediately correct deficiencies/lapses. The

activity shall be made from time to time to check compliance to

the pre and post release conditions of an approved lease/loan.

Samples shall be limited to accounts with outstanding balances of

Php3.00 million or more.

4.4. Conduct special reviews as the need arises or upon instructions of

senior management.

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B. SCOPE OF CREDIT REVIEW

1. The credit review shall focus on the assessment of two (2) major credit

aspects. These major credit blocks are subdivided into sub-blocks to

properly evaluate LBP Lease’s credit practices.

1.1. Portfolio Quality – this is principally evaluated using a

quantitative assessment of the portfolio mix and past due rate and

amount set for valuation reserves. The following parameters shall

be used to measure performance for each sub-block:

1.1.1. Portfolio Mix – the sub-block measures the

diversification of the lease/loan portfolio in terms of type

of project and/or borrower.

1.1.2. Past Due Rate (Amount) – total past due balance

against total loan balance should not exceed the

approved limit of 10% for commercial sector and 20%

for agrarian sector.

1.1.3. Valuation Reserve (VR) – amount set as required to

cover probable losses should not more than 20% of the

total lease/loan portfolio and recommended VR should

sufficiently cover the amount required for probable

losses.

1.2. Process Quality – this other major block is an assessment of the

procedures in the marketing and administration of accounts based

on credit policies and procedures established by LBP Lease. The

process is also categorized into the following sub-blocks:

1.2.1. Target Market – the review shall determine if the

account solicitation activities are systematically

undertaken considering the prescribed target market and

Risk Asset Acceptance Criteria.

1.2.2. Credit Initiation and Analysis – the review will focus

on the quality of evaluation and analysis of credit risks

that result in the extension of credit. It touches on the

packaging and approval of credit facilities.

1.2.3. Lease/Loan Documentation and Disbursement –

this shall involve the verification of the appropriateness,

adequacy and completeness of lease/loan

documentations, as well as compliance to all pre-release

conditions of lease/loan and collateral documentary

requirements. Also, the review shall see to it that all

availments, renewals, extension and other credit-related

transactions are properly approved.

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1.2.4. Credit Administration and Documents

Management – the review shall validate the

effectiveness of the credit monitoring and supervision

and support system. It shall determine whether a “good

housekeeping” system is in place and working.

1.2.5. Problem Recognition – the review shall assess the

ability to anticipate adverse factors affecting credit risk

and to detect potential problem accounts, as well as

timely reporting of such events to the proper authorities,

classification of accounts and lodging of past due

accounts.

1.2.6. Lease/Loan Recovery Management – the review

shall evaluate the effectiveness of action plan on problem

accounts. Results of recovery measures, evaluation of

work-out plans and tracking of remedial actions shall also

be assessed. The disposal, utilization and administration

of acquired assets as well as collection of written-off

accounts shall likewise be evaluated.

2. Organization and Staffing

2.1. Organization and Deployment – this aspect of the review shall

establish the appropriateness of the organizational set-up in terms

of staff adequacy, work experience, delineation of functions,

account assignment and back-up system, among others.

2.2. Coaching and Training – the review shall determine the

availability and effectiveness of training programs and other

coaching tools in the delivery of functions.

C. CREDIT REVIEW PROCESS

1. Ideally, the credit review should be made yearly. Compliance and spot

reviews shall be made as the need arises.

2. All types of credit reviews shall be done in a surprise manner.

3. Ideally, the regular review duration shall not exceed forty-five (45)

working days. For compliance and spot reviews, duration shall be at a

maximum of fifteen (15) working days unless there is a need to extend.

4. Data requirements are essential in the smooth conduct of credit reviews,

hence, all concerned units are required to maintain an updated database

at all times.

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5. The review proper shall involve the examination of credit documents and

related files of the accounts during the coverage of the review. Accounts

to be reviewed shall be determined by the IAU.

6. The auditor reviewer to supplement data gathering and to clarify issues

shall do interviews of the Account Officers simultaneously.

7. For each account reviewed, the auditor shall issue Comment Sheet

containing queries and audit exceptions that should be answered by the

responsible Account Officer and noted by the Group Head.

8. Comment Sheet shall be returned to the auditor interviewer at an agreed

time but not more than three (3) days from date of receipt. These would

serve as basis in the preparation of draft of Discussion Draft Report,

which will contain all exceptions not duly clarified during the review

proper.

9. Project visitations shall also be undertaken by the auditor to augment

information gathered from working files. Account validation shall either

be coordinated with the AMG or the auditors may opt to conduct project

calls on their own.

10. Minimum sample size shall be 35% of total number of accounts and 65%

of total lease/loan balance.

11. Pre-Exit Conference shall be done by the IAU to ensure that all issues are

discussed in detail, clarified and understood. This also serves as venue

for the IAU to further coach Account Officers on the proper way of

implementing credit procedures, if there is a need.

However, the pre-exit activity may be dispensed with in cases where the

audit findings are reasonably minimal and such issues could be sufficiently

covered during the conference provided a mutual agreement has been

made between the auditee and the auditor.

12. The Exit Conference shall be held among the audit team and the

concerned Group Heads and Account Officers to discuss

findings/exceptions contained in the draft of the Audit Report, which shall

be submitted to them by the auditor reviewer at least three (3) days prior

to the scheduled date of the Exit Conference.

13. The final Internal Audit (IA) Report shall incorporate the issues taken up

during the Exit Conference. The IA Report shall be basis of the auditee’s

official response memo, which shall be course through appropriate

channels and submitted to the Chairman of the Audit Committee.