BSP to local govts: Ask permission before borrowing

Rappler.com
All local loans of local government units must have prior approval of the Monetary Board before banks release them

MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) reminded banks that loans to local governments must first obtain an the approval from the central bank, which is monitoring the effect of these borrowings on overall economic health.

The BSP wrote in a statement on Monday, September 2, reminding “banks and non-bank financial institutions that local government units (LGUs) planning to borrow funds from domestic sources need to request the prior opinion of the Monetary Board (MB) on the probable effects of their loans and other borrowings on prices, monetary aggregates and the balance of payments (BOP).”

Banks will be “sanctioned” if they release loans or other forms of borrowings to local government units, BSP said.

The Monetary Board’s approval is valid for 6 months, but may be extended for valid 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,” it warned.

The Board’s opinion will not cover the feasibility of the projects to be financed.

The Monetary Board is the policy-making body of the BSP. It decides on how to use the monetary tools available, particularly interest rates, based on different economic indicators.

“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,” BSP added.

It stressed that the 1993 New Central Bank Act gave it power that covers official credit operations by the “national government, its political subdivisions or instrumentalities, including government-owned and controlled corporations, local water districts, as well as state universities and colleges.” – Rappler.com

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