The Monetary Board, in its Resolution No. 2 dated 6 January 2005, approved the following revised guidelines for the Currency Rate Risk Protection Program (the "CRPP Facility").

Section 1. The CRPP Facility. The CRPP Facility is a non-deliverable USD/PHP forward contract (NDF) between the Bangko Sentral ng Pilipinas (BSP) and a universal/commercial bank (the "Bank") in response to the request of bank clients desiring to hedge their eligible foreign currency obligations. A derivatives license is not required to avail of the CRPP.

Under the CRPP Facility, only the net difference between the contracted forward rate and the prevailing spot rate shall be settled in pesos at maturity of the contract. Should the eligible obligation be denominated in a foreign currency other than the US dollar, the CRPP contract shall be denominated in the US dollar equivalent using the exchange rate indicated in the BSP Treasury Department Reference Exchange Rate Bulletin on deal date.

Section 2. Coverage. Eligible obligations under the CRPP Facility shall refer to unhedged foreign currency obligations in amounts of not less than US$50,000.00 which are current and outstanding as of date of application. Past due foreign currency obligations are not eligible. For this purpose, unhedged obligations are those without outstanding hedge either through forward contracts, options or matched foreign currency assets. Partially hedged foreign exchange obligations shall be evaluated on a case-to-case basis.

The following are the eligible foreign exchange obligations:

1. BSP-registered medium/long-term (MLT) FCDU loans and bonds [with remaining tenors of up to five (5) years] booked as of 31 December 2003;
2. BSP-registered short-term (ST) trade-related FCDU loans;
3. BSP-registered ST trade-related borrowings of oil companies from offshore banking units (OBUs) and offshore banks;
4. US dollar trust receipts;
5. Foreign currency import bills/customers' liabilities under acceptances; and
6. Documents against acceptance (DA)/open account (OA) import obligations duly reported by an AAB to BSP under Schedule 10 of FX Form 1.

BSP-registered MLT FCDU loans and bonds incurred after 31 December 2003 may also be considered on a case-to-case basis.

In the case of oil companies that intend to cover under a single CRPP contract an importation initially made under an OA arrangement to be rolled over or refinanced with a ST FCDU loan upon maturity, BSP approval through the International Operations Department may be granted on a case-to-case basis.

Section 3. Terms and Conditions. The terms and conditions of the CRPP Facility are set forth in the implementing guidelines (Annex 1).

Section 4. CRPP Application Form. The CRPP application form should be completely accomplished. Forms with missing information shall not be accepted.

Section 5. Reporting Requirements. Daily reports on executed/preterminated/cancelled CRPP transactions shall be submitted by the Bank to the appropriate BSP-Supervision and Examination Department (SED-I/SED-II/ SED-III) in the prescribed format (Annexes 2 and 2A) not later than 4:30 P.M. of the following banking day.

These reports shall be signed jointly under oath by the Bank's authorized signatory who shall at least be a Senior Vice President or his equivalent and by the Compliance Officer. Said reports shall be considered Category A-1 for purposes of imposing monetary penalties on delayed/erroneous reports as prescribed in the Manual of Regulations for Banks.

Section 6. Pretermination. Pretermination of a CRPP contract shall be allowed subject to the rules on pretermination under Annex 1, including settlement of net differential in pesos.

Section 7. Sanctions. In the event a CRPP contract is preterminated for reasons other than those allowed by the BSP, monetary penalties shall be imposed as detailed in the pertinent provisions of Annex 1.

Furthermore, in case the CRPP contract has matured and was subsequently found to be ineligible, a monetary penalty of PhP30,000.00 per calendar day shall be applied reckoned from the date of ineligibility up to maturity of the contract.

Section 8. Repealing Clause. This Circular supersedes Circular Nos. 292 and 300 dated 17 August 2001 and 24 September 2001, respectively, as well as parts of other circulars inconsistent herewith.

Section 9. Effectivity. This Circular shall take effect fifteen (15) calendar days after publication in the Official Gazette or a newspaper of general circulation in the Philippines.

Adopted: 17 Jan. 2005

For the Monetary Board:

(Sgd.) RAFAEL B. BUENAVENTURA
Governor

ANNEX 1

IMPLEMENTING GUIDELINES FOR BSP CIRCULAR NO. 470
THE CURRENCY RATE RISK PROTECTION PROGRAM
(THE "CRPP FACILITY")

A. MECHANICS

1. Qualified applicants shall file an application in the attached format (Annex 3) with a universal/commercial bank (the "Bank") certifying under oath that the underlying foreign currency obligation qualifies under the Circular and that such obligation is unhedged.


2. The Bank, after reviewing the application and finding the same in order, shall request the BSP-Treasury Department to quote the CRPP rates between 1:00 - 2:30 P.M. and 4:00 - 4:30 P.M. Each application shall be dealt by BSP-Treasury Department separately.


3. The Bank shall transmit the details of the deal done with BSP-Treasury Department to BSP-SED-I/SED-II/SED-III not later than 4:30 P.M. of the following banking day. The transmittal shall include a hard copy of the Reuters conversation with BSP-Treasury Department, or if the deal is done thru the telephone, a fax copy of the details of the transaction, i.e., tenor/maturity date, swap points, spot rate, forward rate and amount.


4. The client, thru the Bank, shall provide the relevant documentary requirements that BSP-SED-I/SED-II/SED-III may require. All deals done between the Bank and the BSP-Treasury Department shall be subject to confirmation (approval/disapproval) by the BSP-SED-I/SED-II/SED-III on the basis of the results of its evaluation of the supporting documents.

B. DOCUMENTARY REQUIREMENTS

Unless otherwise indicated, all of the following documents shall be certified as true copies by the Bank's authorized signatory who shall at least be a Senior Vice-President or its equivalent and by the Compliance Officer, and submitted to the BSP-SED-I/SED-II/SED-III together with the application to avail of the CRPP Facility:

1. BSP-registered FCDU loans and bonds

For medium/long-term [MLT-with remaining tenors of up to five (5) years booked as of 31 December 2003] FCDU loans and bonds:

1. BSP registration letter and accompanying Schedule of Principal and Interest Payments on BSP-registered Foreign Credits (Schedule RA-2); or
   
2. BSP letter-notation for partial loan utilizations and BSP letter indicating the approved loan terms together with bond prospectus for bond issues (optional).

In case document (b) is presented, amount eligible for hedging shall be limited to the total amount noted per the BSP letter.

For short-term [ST-with original maturity of up to one (1) year] trade-related FCDU loans:

1. Promissory note certified by the Head of the lending Bank's Loans Department; and
   
2. Certification from lending Bank on the date when loan account has been reported to BSP-International Operations Department (IOD) under IOS Form 4; or Certification from lending Bank that the loan is outstanding (for loans which have not been reported to BSP-IOD under IOS Form 4 which is due for submission 15 banking days from end of reference month) indicating the following details: date granted, amount outstanding as of date of application, loan purpose and due date/s.

For purposes of this Circular, the eligible ST FCDU loans are those that satisfy the eligibility criteria for registration under BSP Circular No. 1389, as amended.

2. BSP-registered short-term trade-related borrowings of oil companies from offshore banking units (OBUs) and offshore banks

1. Promissory note certified by the Head of the lending OBU's Loans Department or by the oil company's highest ranking Treasury/Finance officer for loans granted by offshore banks;
   
2. Loan agreement indicating, among others, loan purpose and terms;
   
3. Original certification from lending OBU that the loan was utilized for trade purposes or relevant shipping documents for loans extended by offshore banks; and
   
4. Original certification from the lending OBU on the date when loan account has been reported to BSP under the prescribed forms or Original certification from lending OBU that the loan is outstanding (for loans which have not been reported to BSP). For loans granted by offshore banks, original certification from the oil company's highest ranking Treasury/Finance officer that the loan has been duly reported by the firm to BSP through the IOD and remains outstanding as of date of application.

3. US dollar trust receipts ($ TRs)

1. Letter of credit, if applicable;
2. Commercial invoice;
3. Bill of lading (BL);
4. $ TR draft; and
5. Trust receipt agreement

4. Foreign currency import bills/Customers' liabilities under acceptances

1. Commercial invoice;
2. Bill of exchange (import bill or customer's acceptance);
3. BL; and
4. Letter of credit

5. BSP-reported Documents Against Acceptance (DA)/Open Account (OA) obligations

1. Certification from the AAB which reported the DA/OA availment to BSP that the accounts were duly reported to BSP under Schedule 10 of FX Form 1 indicating the date of report, the Bank Reference Number and unpaid balance as of application date; and
   
2. In case of DA, the Bill of Exchange with the importer's Acceptance indicated thereon.

For oil company-importers, the following documents must be additionally submitted to support application for CRPP contracts to cover DA/OA:

1. Commercial invoice and BL certified as true copy by the importer, or if these are not yet available, the import advice or e-mail confirmation from supplier showing the estimated shipment date, volume and value to evidence the importation; and


2. Importer's Letter of Undertaking (LOU) that the certified true copy of the invoice and the BLs will be delivered upon availability but not beyond the maturity of the contract covering the supplier's credit (OA arrangement), provided that if the said certified true copy of the BL is not yet available on said date, a Letter of Indemnity (LOI) from supplier will be presented in lieu of the BL copy; provided further that both the LOU and the LOI should indicate the BL date in addition to data on estimated volume and value of the shipment, loadport and shipping vessel. Non-delivery of the certified true copy of the invoice and the BLs at maturity of the contract covering the supplier's credit will subject the Bank to penalty of PhP1,200.00 per banking day of delay starting from the banking day following the maturity date up to date the documents were submitted.

6. In addition to the documents under No. 5, oil companies that intend to use a single CRPP contract to cover importations initially under an OA arrangement to be rolled over or refinanced with a ST FCDU loan upon maturity shall submit:

1. BSP-IOD approval for the use of a single CRPP contract for above transactions; and
   
2. a sworn letter of undertaking:

 

i. to roll over the OA upon maturity or obtain an FCDU loan to refinance the supplier's credit whose maturity shall coincide with that of the CRPP contract; and
ii. to submit proof/s of payment of the supplier's credit within five (5) days from date of payment.

It is understood that the supplier's credit/OA should have been duly reported under Schedule 10 of FX Form 1 (Consolidated Report on Foreign Exchange Assets and Liabilities) in line with Circular No. 419 dated 2 February 2004.

C. TENORS

Contract tenors will be from ten (10) days to twelve (12) months but not to exceed the final maturity date of the underlying foreign exchange obligation. The eligible foreign exchange obligations falling due beyond twelve (12) months from application date may be hedged by entering into a series of CRPP contracts. A new application is required for each CRPP contract.

D. PRICING

The BSP-Treasury will provide forward rates in tenors of up to one (1) year. Pricing of the non-deliverable forward (NDF) contract under the CRPP Facility will be based on this formula:

               

NDF Rate =	Spot Rate x [ 1 + (Peso Interest Rate* x Tenor/360) ]
	1 + (US Dollar Interest Rate** x Tenor/360)

* Peso Interest Rate will be determined by BSP-Treasury
* * US Dollar Interest Rate will be based on the relevant SIBOR

For the 1:00 - 2:30 P.M. CRPP window, BSP-Treasury will use the A.M. Philippine Dealing System (PDS) weighted average rate for spot transactions or the weighted average of the last five (5) transactions mapped at the PDS during the morning session, whichever is higher, on deal date as the Spot Rate. If both are not available, the previous banking day's PDS weighted average rate or the weighted average rate of the last five (5) transactions dealt in the afternoon session, whichever is higher, will be used as the Spot Rate. For the 4:00 - 4:30 P.M. CRPP window, BSP-Treasury will use the PDS weighted average rate for spot transactions or the weighted average of the last five (5) transactions mapped at the PDS during the afternoon session, whichever is higher, on deal date as the Spot Rate.

E. FIXING DATE

One business day prior to the maturity date of the CRPP contract, the Fixing Rate will be agreed upon by the Bank and the BSP, using the A.M. PDS weighted average rate. The net difference between the NDF Rate and the Fixing Rate will be applied against the Notional US Dollar Amount to compute the Peso Net Settlement Amount. If the Fixing Rate is higher/lower than the NDF Rate, BSP pays/receives the Peso Net Settlement Amount. The Peso Net Settlement Amount will then be paid on the maturity date of the CRPP contract by crediting or debiting the regular demand deposit account of the Bank with the BSP. The applicable formula for computing the peso net settlement amount will be as follows:

Peso Net Settlement Amount = (NDF Rate - Fixing Rate) x Notional US Dollar Amount

F. PRETERMINATION OF CRPP CONTRACT

1. PRETERMINATION REQUESTED BY CLIENT

1. Pretermination of a CRPP contract shall be allowed if the corresponding foreign exchange (FX) obligation will be paid in full or in an amount at least equal to the amount of the CRPP contract. The manner of prepayment should not be done thru renewal of the loan under a new promissory note or by another form of FX obligation.
   
2. The client should apply for the pretermination of the CRPP contract with its Bank by submitting a document evidencing the creditor's conforme to the proposed prepayment. The proof of payment shall be submitted on prepayment date.
   
3. BSP-Treasury shall quote the NDF Reversal Rate upon request of Banks on behalf of their clients, between 1:00 - 2:30 P.M. one (1) banking day before the pretermination date.
   
   The NDF Reversal Rate shall be computed following the NDF Rate formula based on the Remaining Tenor of the CRPP contract and the New Spot Rate.
   
   BSP-Treasury will use the A.M. PDS weighted average rate for spot transactions or the weighted average of the last five (5) transactions dealt during the morning session, whichever is lower, on the date of request, adjusted for the prevailing bid-offer spread, as the New Spot Rate. If both are not available, the New Spot Rate shall be the previous banking day's PDS weighted average rate or the average of the last five (5) transactions dealt in the afternoon session, whichever is lower, adjusted for the prevailing bid-offer spread.
   
4. On pretermination date, if the NDF Reversal Rate is higher/lower than the original NDF Rate, BSP pays/receives the Pretermination Peso Net Settlement Amount, as calculated using the formula below. The Pretermination Peso Net Settlement Amount shall be paid by crediting or debiting the regular demand deposit account of the Bank with the BSP.
   
   Pretermination Peso Net Settlement Amount =
   
   (NDF Rate - NDF Reversal Rate) x Notional US Dollar Amount
   1 + (Peso Interest Rate* x Remaining Tenor / 360)

   * Peso Interest Rate will be determined by BSP Treasury
   

5. Should post-verification of pretermination show no actual payment of the FX obligation or the manner of payment was thru the renewal of the loan under a new promissory note or by another form of FX obligation, the BSP shall debit the Bank's regular demand deposit account with the BSP for the amount received by the Bank from BSP as a result of the pretermination of the CRPP contract, if any, plus interest calculated using BSP's overnight lending rate from the date the amount was received from the BSP to the date the amount is returned to the BSP. In addition, the Bank shall be liable to pay a monetary penalty of PhP30,000.00 per calendar day covering the period from the date the application for pretermination was filed up to the date BSP-SED-I/SED-II/SED-III completes post-verification of pretermination or maturity of the contract, whichever comes earlier.
   
6. Should post-verification by BSP-SED-I/SED-II/SED-III show that the underlying FX obligation of a preterminated CRPP contract is ineligible, the BSP shall debit the Bank's regular demand deposit account with the BSP for the amount received by the Bank from BSP as a result of the pretermination of the CRPP contract, if any, plus interest calculated using BSP's overnight lending rate from the date the amount was received from the BSP to the date the amount is returned to the BSP. A monetary penalty of PhP30,000.00 per calendar day shall be imposed from contract date up to pretermination date.

2. PRETERMINATION BY THE BSP

1. BSP shall preterminate CRPP contracts when the underlying FX obligation is found ineligible during post-verification by BSP-SED-I/SED-II/SED-III. A monetary penalty of PhP30,000.00 per calendar day shall be imposed from the contract date up to pretermination date.
   
2. BSP shall also preterminate CRPP contracts when the underlying FX obligation is paid before the maturity of the CRPP contract and the client failed to request for pretermination. A monetary penalty of PhP30,000.00 per calendar day shall be imposed from the date of payment of the underlying FX obligation up to pretermination date.
   
3. Settlement on pretermination date of the Pretermination Peso Net Settlement Amount will be as follows:

 

a) If the NDF Reversal Rate is lower than the original NDF Rate, the Bank will pay the Pretermination Peso Net Settlement Amount;
  b) If the NDF Reversal Rate is higher than the original NDF Rate, the BSP shall not pay the Pretermination Peso Net Settlement Amount.

Underlying FX obligations of preterminated CRPP contracts shall no longer be eligible for CRPP.

Reporting requirements under Mechanics 3 and 4 on page 1 of this Annex shall apply to all pretermination deals.

G. MATURED CONTRACTS

Any net differential in pesos paid by BSP pertaining to matured CRPP contracts subsequently found to be ineligible shall be refunded and shall earn interest calculated on a daily basis based on BSP's overnight lending rate from the date of BSP payment until said payment is refunded.