- Details
- Category: Banking & Finance
- Published on Monday, 02 September 2013 19:50
- Written by Bianca Cuaresma
Local government units (LGUs) are reminded to seek the opinion of the Monetary Board (MB) before borrowing funds from local banks and other financial institutions, the Bangko Sentral ng Pilipinas (BSP) said on Monday.
The BSP said the requirement for prior MB opinion allows the central bank to monitor the borrowing of the public sector and assess the impact of such transactions on the monetary sector and even on country's external payments position. The process, the monetary authority said, will help the BSP fulfill its mandate of maintaining monetary and financial stability. The BSP is the designated financial advisor of the government on official credit operations.
"The BSP reminds banks and non-bank financial institutions that LGUs planning to borrow funds from domestic sources need to request the prior opinion of the MB on the probable effects of their loans and other borrowings on prices, monetary aggregates and the balance of payments [BOP]," the central bank said.
The central bank said banks and other financial institutions that will release loans or other forms of borrowings to LGUs without prior MB opinion will be sanctioned accordingly.
The issuance of a prior opinion for LGUs' borrowings is in accordance with Republic Act 7653, also known as the New Central Bank Act of 1993. The requirement covers the national government, the LGUs and other political subdivisions; government-owned and -controlled corporations, local water districts and state universities and colleges.
"The MB will not issue an opinion if there has been partial or full release of a borrowing by a bank or non-bank financial institution or lender to the LGU since the MB will then no longer be in the requisite position to render a prior opinion. The MB opinion does not pass upon the feasibility of the projects to be financed by the proposed borrowing," the BSP said.
LGUs' requests for prior MB opinion on their planned borrowings can be submitted to the monetary authority either directly by the requesting party or through the lending banks. The BSP said the request must include the amount and purpose of the loan, the lending bank, the terms and conditions of the loan including the interest rate, maturity, fees and other charges among others.
A post-borrowing report must also be submitted to the central bank 30 days after the full release of loan proceeds. The report must cite the final terms and conditions of the loan as well as the utilization of the loan proceeds.
