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The Monetary Board in its Resolution No. 1226 dated 26 July 2018, approved the following guidelines governing the adoption of PFRS 9 - Financial Instruments.
 

Section 1. Subsection X191.3 of the Manual of Regulations for Banks (MORB), Subsection 4191Q.3 and Section 4161N of the Manual of Regulations for Non- Bank Financial Institutions (MORNBFI) are hereby amended to read as follows:

“Subsection X191.3/4191Q.3/Section 4161N Philippin Financial Reporting Standards (PFRS).

Statement  of  Policy.  It  is the thrust  of  the Bangko Sentral to align its financial reporting requirements with standards and practices that are widely accepted  internationally  to  promote  fairness,  transparency,  and accountability in the financial industry. In this light, the Bangko Sentral is issuing guidelines governing the adoption of the PFRS, aimed at ensuring consistency of application and comparability of financial reports across the industry.

a.  Adoption of PFRS. BSP Supervised Financial Institutions (BSFls) shall adopt PFRS in recording transactions and in the preparation of financial statements and reports to the Bangko Sentral. However, in cases where there are differences between Bangko Sentral regulations and PFRS as when more than one (1) option are allowed or certain maximum or minimum limits are prescribed by PFRS, the option or limit prescribed by the Bangko Sentral shall be adopted by BSFls. These include the accounting treatment of “Government Grants”.

Government grants extended in the form of loans bearing nil or below- market rate of interest shall be measured upon initial recognition at its fair value (i.e. the present value of the future cash flows of the financial instrument discounted using the market interest rate). The difference between the fair value and the net proceeds of the loan shall be recorded under “Unearned Income-Others”, and shall be recognized as income on a systematic basis over the period of the loan necessary to match with the related cost for which the grants are intended to compensate.

b.   Preparation of prudential reports. For prudential reporting, BSFIs shall adopt in all respect the PFRS except in the following cases:

(1)  In preparing consolidated financial statements, only investments in financial allied subsidiaries except insurance subsidiaries shall be consolidated with the financial statements of the parent bank on a line-by-line  basis;  while  insurance  and  non-financial  allied subsidiaries shall be accounted for using the equity method. Investments  in  financial/non-financial  allied/non-allied  associates and joint ventures shall be accounted for using the equity method in accordance with the provisions of Philippine Accounting Standards (PAS) 28 “Investments in Associates and Joint Ventures”.

In preparing solo/separate financial statements, investments in financial/non-financial allied/non-allied subsidiaries/associates, including insurance subsidiaries/associates, shall be accounted for using the equity method as described in PAS 28.

The rules on the preparation of solo financial statements as provided in Appendix 77 shall apply to banks.

(2)  BSFIs  shall  recognize  adequate  and  timely  allowance  for  credit losses at all times. In this respect, BSFIs shall adopt the principles provided  under  the  Enhanced  Standards  on  Credit  Risk Management under Section X178/4178Q/4197N as well as the provisions of Appendix 97/Q-56/N-16 of the MORB/MORNBFI in measuring credit losses.

c.   Preparation  of  Audited  Financial  Statements  (AFS).  AFS  shall  in  all respect be PFRS compliant and shall be submitted to the Bangko Sentral in accordance with the provisions of Subsection X190.1/4190Q/4172N of the MORB/MORNBFI.

BSFIs shall submit to the Bangko Sentral adjusting entries reconciling the balances in the financial  statements for prudential reporting with those in the AFS.

d.   Guidelines on the adoption of PFRS 9 Financial Instruments. BSFIs shall adopt, as part of the PFRS framework, PFRS 9: Financial Instruments upon its mandatory effectivity date of 01 January 2018.

For this purpose, BSFIs shall be governed by the following:

(1)  Consistent  with  the  duties  and  responsibilities  of  the  board  of directors provided under Subsection X143.1/4143Q.1 of the MORB/MORNBFI,   the  board  of   directors  or   any  equivalent governing  body  in  the  case  of  branches  of  foreign  banks,  shall ensure that the BSFI appropriately and consistently adopts PFRS 9 as part of its reporting governance process. In this respect, the board shall assess the impact of PFRS 9 on business strategies and risk management systems and ensure availability of sufficient resources, including capacity building initiatives, in adopting the standard.

The board shall approve policies and guidelines relative to the adoption  of  PFRS  9,  which  shall  cover  responsibilities  of  the different units in the BSFI (e.g., Treasury, Risk Management, Financial Controllership) as well as the extent of participation or involvement of third parties in the adoption process. The board shall likewise ensure that adequate control measures are in place to ensure the integrity of reports.

(2)  Management shall implement the policies set by the board related to the  adoption  of  PFRS  9  and  ensure  that  sound  professional judgment  is  exercised  in  implementing  the  provisions  of  the standard. Management shall provide feedback to the board on the effectiveness of implementation of PFRS 9.

(3)  BSFIs shall be guided by the provisions of Appendix 33/Appendix Q-
20 on “Guidelines on the Adoption of Philippine Financial Reporting Standards 9 (PFRS 9) - Classification and Measurement” and Appendix 97/Appendix Q-56/Appendix N-16 on “Impairment” in implementing the provisions of PFRS 9.

e.  Enforcement Actions. Consistent with Sec. X009/4009Q/4182N.6 of the MORB/MORNBFI, the Bangko Sentral reserves the right to deploy its range   of   supervisory   tools   and   enforcement   actions   to  promote adherence with the requirements set out in this Subsection and bring about timely corrective actions to ensure appropriate and consistent adoption  of  PFRS.  In  this  respect,  the  Bangko  Sentral  may  issue directives or impose sanctions on the BSFI and/or its directors, officers and/or  employees  concerned  for  noted  supervisory  issues  on  the adoption of PFRS 9.

Prudential reports affected by non-adherence to the provisions of this Subsection shall be subject to penalties/sanctions provided under Subsection X184.3 / 4192Q.2 / 4162N.3 of the MORB/MORNBFl.

f.    Transitory Provisions. BSFIs shall observe the following transition rules:

(1)  BSFIs shall apply PFRS 9, retrospectively, in accordance with the transition requirements and guidance provided under PFRS 9 and PAS 8 “Changes in Accounting Policies, Changes in Accounting Estimates and Errors”. BSFIs shall be guided by the provisions of PAS 8 if the retrospective application is impracticable.

(2)  A BSFI that applied the earlier versions of PFRS 9 (2009), PFRS 9 (2010) or PFRS 9 (2013) shall be allowed to reclassify its financial assets provided that the reclassification requirements under the standard are met.

(3)  A BSFI is expected to comply with the reportorial and disclosure requirements of the Securities and Exchange Commission on the adoption of PFRS 9.

Section 2. The provisions of Appendix 33 of the MORB and Appendix Q-20 of the MORNBFI, including their Annexes are hereby deleted and replaced by “Guidelines on the Adoption of Philippine Financial Reporting Standards 9 (PFRS 9) - Classification and Measurement” as shown in Attachment 1*.

Section 3. The provisions of Appendix 97 of the MORB and Appendix Q-56 of the  MORNBFI  are  hereby  deleted  and  replaced  by  the  “Guidelines  on  the Adoption of Philippine Financial Reporting Standards 9 (PFRS 9) – Impairment” as shown in Attachment 2. Appendix N-16 of the MORNBFI is hereby created, which shall likewise contain the guidelines provided in Attachment 2*.

Section 4. Appendix 18 of the MORB and Appendix Q10/N-11 of the MORNBFI are hereby amended as shown in Attachment 3*.

Section 5. Subsection X191.5 of the MORB and the last paragraph on penalties and sanctions under Subsection 4191Q.3 of the MORNBFI are hereby deleted.

Section 6. The following pertinent Section and Subsections of the MORB and MORNBFI are hereby amended to read as follows:

“Section 1389 Guidelines on the Investment of Universal Banks and Commercial Banks in Credit-Linked Notes (CLNs), Structured Products and Securities Overlying Securitization Structures. xxx
xxx

The guidelines on the accounting for investments in CLNs and other SPs are provided in Appendix 33 of the MORB. Appendix 66a of the MORB shall be deleted and the guidelines on the reclassification of CLNs and other similar instruments that are linked to the ROP under Bangko Sentral Memorandum No. M-2009-012 dated 16 April 2009 shall no longer apply to financial assets that are accounted for in accordance with PFRS 9.”

“Subsection 1636.3 Other conditions. xxx

a.   Maturity. xxx
xxx

c.  Booking. Investments in structured products as herein defined shall be booked in accordance with Subsecs. X186.1, X388.5 and Appendix 33*. xxx

d.   Prudential limits - The total carrying value of all investments in structured products as defined herein at any given point in time must not exceed twenty percent (20%) of the total investment portfolio of the EFCDU.”

xxx”

“Subsection  X192.10  (2008  -  X162.101)  Consolidated  financial statements of banks and their subsidiaries engaged in financial allied undertakings.

xxx

For purposes of preparing consolidated financial statements, the provisions of Subsec. X191.3 b (1) shall apply.

xxx”

“Subsection X394.2 / 4394Q.2 Booking

a.   xxx xxx

d.  Financial assets, shall be reclassified and booked in accordance with Appendix 33 of the MORB/Appendix Q-20 of the MORNBFI, except interests in subsidiaries, associates and joint ventures, which shall be booked under Equity Investments in Subsidiaries, Associates and Joint Ventures and accounted for in accordance with Subsection X191.3 b (1)/4191Q.3 b (1).
xxx”

Section 7. Subsection X305.4 of the MORB and Subsections 4305Q.4, 4312N.6 of the MORNBFI, are hereby amended to read as follows:

“Subsection  X305.4/4305Q.4/4312N.6  Accrual  of  interest  earned  on loans and other credit accommodations. Accrual of interest earned on non-performing loans and other credit accommodations shall not be allowed. xxx.”
 

Section 8. “PAS 39” as referred to in Subsections X119.9, X394.2, X394.3 and Appendices 25, 56a of the MORB and Subsections 4394Q.2, 4394Q.3 and Appendices Q-15, Q-28-a of the MORNBFI, shall be replaced by “PFRS 9”.

Section 9. Prudential Reports. Pending the issuance of the revised Financial Reporting Package (FRP) template and other prudential reports, the BSFIs shall adopt the mapping matrix provided in Annex A of Appendix 33 and Q-20 of the MORB/MORNBFI effective for the reporting period ending September 2018. The guidelines  governing  the  issuance  of  the  revised  electronic  FRP  shall  be deployed through a Memorandum to all BSFls.

Section 10. Effectivity. The Circular shall take effect 15 calendar days following its publication either in the Official Gazette or in a newspaper of general circulation.