Philippine Central Bank Grants Relief on Bad Asset Disposal
The Bangko Sentral ng Pilipinas (BSP), the Philippines’ Central Bank, issued Memorandum M-2022-028 which grants prudential relief for banks and financial institutions on the treatment of losses arising from the sale or transfer of bad assets.
Bangko Sentral Supervised Financial Institutions (BSFIs) are given the option to defer losses arising from the sale or transfer of non-performing assets under the Financial Institutions Strategic Transfer Act for a period of up to five years from the date of said sale or transfer for prudential reporting purposes. Availing of this option entails prior approval of the BSP.
The BSP has designated the Philippine Financial Reporting Standards on financial instruments as the basis for the determination of gains or losses on the sales or transfers.
BSFIs which avail of the prudential relief are likewise required to adopt the same procedure in the following: determining compliance with prudential requirements such as minimum capital requirements, risk-based capital adequacy ratio, and in computing adjusted net worth for purposes of complying with minimum prudential requirements such as the single borrower’s limit. Banks are further required to provide the public with disclosures of such prudential reliefs in its published balance sheet and annual report.
The full memorandum can be accessed here.