The Bangko Sentral ng Pilipinas (BSP) reminded banks and non-bank financial institutions to secure an opinion from the Monetary Board (MB) before releasing loans to local governments.
In a statement on Monday, the BSP said that local government units (LGUs) planning to borrow funds from domestic sources need to request an opinion of MB on the “probable effects of their loans and other borrowings on prices, monetary aggregates and the balance of payments [BOP].”
The central bank warned that banks will be sanctioned if they release loans or other forms of borrowing to local governments without prior MB opinion, that is valid for six months from the date of issue and may be extended for meritorious reasons.
“The MB will not issue an opinion if there has been partial or full release of a borrowing by a bank/non-bank financial institution/lender to the LGU since the MB will then no longer be in the requisite position to render a prior opinion,” it stated.
It said that the requirement for prior MB opinion is in accordance with Republic Act 7653, or the New Central Bank Act of 1993, which designated the BSP as the government’s financial advisor on official credit operations.
“The said requirement covers the national government, its political subdivisions or instrumentalities including government-owned and -controlled corporations, local water districts, as well as state universities and colleges,” it said.
The central bank explained that the process also enables the BSP to monitor the borrowing of the public sector and assess their impact on the monetary sector and external payments position of the economy, in fulfillment of its role and mandate to promote and maintain monetary and financial stability.
“Requests by LGUs for MB opinion on their planned loans/borrowings may be submitted to the BSP directly by LGUs or through the lending banks,” it added.
The BSP noted that the request should indicate the amount and purpose of the loan, the lending bank, the terms and conditions of the loan including interest rate, maturity, fees and other charges.
The central bank also advised proponents to consult other agencies such as the Department of Finance-Bureau of Local Government Finance and the Department of the Interior and Local Government about their requirements, if any, apart from those of the lending bank.
“For the release of the proceeds of the loan, the LGU has to submit to the lending bank/lender a copy of the ordinance approving the proposed loan’s terms and conditions as well as the specific purpose/s and corresponding amount of the project to be funded,” it said.