LBP Leasing Credit Manual Guide

LBP LEASING CORPORATION
(A LANDBANK Subsidiary)
CREDIT MANUAL
2014
CREDIT MANUAL
I. INTRODUCTION
A. POLICY STATEMENT
This Revised Credit Policy Manual was created in pursuit of LBP Leasing
Corporation’s (LBP Lease or the Corporation) commitment in providing
suitable guide to all potential users of this manual thus hastening access to
credit and promoting growth and development for its clients. Being a wholly
owned subsidiary of Land Bank, LBP Leasing Corporation contributes to the
pursuit of bank objectives by extending lease and loan facilities to
Government and its instrumentalities, Small and Medium Enterprises (SMEs),
Corporate Accounts, Cooperatives and Financial Institutions.
LBP Leasing Corporation shall continue to be attuned with the recent changes
and development in the leasing and credit industry to continually provide for
responsive products and services that is within the mandate of the existing
laws and regulations but most especially within the mandate to which the
Corporation was created.
B. OBJECTIVES
This Credit Policy Manual is in response to the need of providing a reference
material for all potential target users which may be used under the following
purposes:
1. To provide a handy reference for target users to facilitate the effective
and efficient performance of their duties and responsibilities;
2. To ensure uniform interpretation and implementation of various credit
policies, systems, procedures, forms and other related documents among
its target users;
3. To collate and integrate various statutory various orders, circulars and
issuance on credit policies and operations into a user-friendly document
to guide users in their daily credit and audit related activities ; and
4. To meet and maintain the following institutional objectives:
 A sound and diversified lease and loan portfolio;
 Prudent lending practice;
 Responsiveness to market requirements and needs;
 Liquidity of asset risk-asset portfolio; and
 Profitability commensurate to risks taken.
C. SCOPE AND LIMITATIONS
The policies contained in this manual are based on pertinent laws, Bangko
Sentral ng Pilipinas (BSP) rules and regulations, Securities and Exchange
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Commission (SEC) rules and regulations, the Philippine Accounting

Standard/Philippine Financial Reporting Standard (PAS/PFRS), and internally
issued policies of the Board of Directors (BOD), the Executive Committee
(ExeCom) and the Management. The provisions in this manual reflect general
operating policies and procedures of the Corporation and may be changed,
amended or revoked as deemed appropriate.
D. TARGET USERS
The content of this manual is provided to satisfy the needs of these users
which may include the following among others:
1. Account Officers – To serve as a handy reference and quick source of
the Corporation’s credit policies and procedures;
2. Approving Authorities – To facilitate the evaluation of credit facility
proposals;
3. Oversight Units – To aid as a basis for reviewing, verifying and
monitoring adherence to credit policies, procedures and operating
guidelines thus enabling them to exercise their oversight functions
effectively;
4. Regulatory/ Supervisory Bodies – To provide information pertaining
to LBP Lease operations for the efficient discharge of their regulatory
functions.
E. REVISIONS IN THE MANUAL
1. General Policy
In view of further developing and continuously improving the Credit
Manual, the initiative to propose revisions, updates and clarifications may
originate from any concerned unit of LBP Lease as may be deemed
appropriate to the Risk Management Unit (RMU). The proposed changes
in the existing credit policies shall be reviewed by the RMU and discussed
with the Credit Committee (CreCom).
Events which should result in revision of existing or the development of
new policies and procedures may also emanate from the following:
 Results and recommendations rendered by the Commission on Audit
(COA) upon completion of the annual audit;
 New laws and regulations of the land , circulars and requirements
issued by governing bodies and regulators such as the Bangko
Sentral ng Pilipinas (BSP) and the Securities and Exchange
Commission (SEC);
 Implementation of new technologies;
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 Changes in institutional policies and practices which are based on

improved efficiency; and
 Result of internal studies performed by the Risk Management Unit
(RMU), Internal Audit Unit (IAU), Executive Committee (ExeCom),
Board of Directors and/or any equivalent governing body.
2. Procedures
2.1. Proposed amendments, revisions and updates are forwarded to RMU
for initial review who shall call upon the Credit Committee to discuss
the proposal.
2.2. The Credit Committee shall then evaluate the proposed changes, as
well as its impact on the operations of the Corporation. Thereafter,
the RMU shall initiate changes in the Manual by drafting a Credit
Policy Issuance (CPI) recommendation for endorsement of the
President for the Board of Directors’ consideration and approval.
2.3. Upon approval of the CPI, notice shall be given to all concerned units
of the new issuance and its effectivity date. The RMU shall present
within a month after the end of each quarter, a summary of the
updates/revisions of the sections of the Credit Policy Manual affected
by all the policy issuances approved during the immediately
preceding quarter.
2.4. The RMU shall keep a record of all additions, amendments, revisions
and/or updates on the Credit Manual to facilitate review and
research.
F. FORMAT/ LAY-OUT OF THE MANUAL
The contents of this Manual shall be printed in a form with the following
information:
 Title of the Manual
 Revision No. – represents the number revision from the initial issuance.
 Revision Date – indicates the most recent date the policy/ procedure was
revised.
 Page No. – represents the sequential page number of the sheet as part of
the Manual.
G. ADMINISTRATION, DISTRIBUTION AND MAINTENANCE
The RMU shall maintain the master copy of the Credit Manual which shall
serve as a complete reference for all credit policy and procedure matters. In
case of conflict, the master copy shall serve as the final basis or reference for
resolving issues on credit policy matters. The RMU shall also ascertain that
adequate copies of the Credit Manual are printed, including additions,
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amendments, revisions or updates thereon, which will be distributed to the

concerned units/departments.
H. REVISION HISTORY
Initial Issue/ Date Previous

Revised Chapters
Revision Date Approved Version
June 1, 2004
June 2004 (BOD Res. No. n/a
Initial Issuance
04-050)
June 29, 2004 Credit Policy

Chapter VIII Section
June 2004 (BOD Res. No. Manual
2.3
04-071) 06012004
November 19,
2014 Credit Policy
August 2014 Manual
(BOD Res. No. 06012004
14-169)
Attached as Annex ____ are the amended sections of this manual.
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II. CREDIT ORGANIZATION AND PROCESS

A. OBJECTIVES OF CREDIT OPERATIONS
Being a wholly owned subsidiary of Land Bank, LBP Leasing Corporation
provide lease and credit facilities coherent to its mother bank’s objectives.
Thus the objectives of the leasing and credit operations of the Corporation
shall be as follows:
1. General Objectives
1.1. To complement and/or support the service of Land Bank of the
Philippines by providing leasing and financing facilities.
1.2. To provide financial services in support of Government program
and/or initiatives.
1.3. To generate acceptable returns and to ensure sustainability of the
Corporation.
2. Specific Objectives
2.1. To assist the Government and its instrumentalities in the acquisition
of assets that will enhance efficiency and improve delivery of its
services.
2.2. To support undertakings of business enterprises:
1.1.1. In expanding, upgrading and/or modernizing their facilities
towards improving capacity, productivity/efficiency of their
operations and becoming globally competitive; and
1.1.2. In increasing their volume of operations and sales.
2.3. To develop and test the viability of new credit products/services and
programs that will address the needs of clients of the Corporation
and Land Bank of the Philippines.
B. ACCOUNT MANAGEMENT GROUP
The Account Management Group (AMG) is the primary marketing,
evaluation and supervision unit for all the credit facilities of the Corporation.
Its functions include the following:
1. Source/market /originate lease and credit accounts.
2. Analyze, evaluate, package and review lease and credit applications.
3. Prepare credit proposals and present the same to the appropriate
approving authorities.
4. Implement/document approved lease and credit accounts.
5. Ensure completeness of all required documents.
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6. Monitor and supervise all outstanding lease and credit facilities.

7. Coordinate with Land Bank of the Philippines, guarantee/funding
institutions and other external parties on matters/transactions pertaining
or relating to accounts handled.
8. Coordinate with Account Servicing Group and other units of the
Corporation in the implementation, monitoring, and supervision accounts,
including the resolution of problematic accounts.
9. Handle the resolution of problem accounts in coordination with Legal
Servicing Unit (LSU) and other concerned units.
C. CREDIT SUPPORT UNITS

There are various units within the organization that provides support in the
lease and credit unit and other auxiliary services to the Corporation. This
includes the following:
1. Account Servicing Group (ASG)
The ASG is further subdivided into three (3) units. These are:
1.2. Documentation and Administration Unit
1.2.1. Review and check documentation of accounts for
implementation/booking to ensure completeness, correctness
and compliance to the approved terms and conditions;
1.2.2. Holds custody of Credit/Security File of all accounts;
1.2.3. Administer and monitor all transactions and documents related
to leased assets and collateral which include insurance,
ownership documents, property taxes, etc.
1.3. Billing and Collection Unit
1.3.1. Set up and maintain subsidiary ledger of all credit accounts.
1.3.2. Prepare and transmit billing statements.
1.3.3. Handle application of payments.
1.3.4. Prepare certificates of full settlement/payment.
1.4. Inspection and Appraisal Unit
1.4.1. Handle inspection and/or appraisal of equipment or real
properties that are subject of lease facilities or those used as
collateral.
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1.4.2. Conduct credit investigation of lessees, borrowers, and other

parties in relation to the lease or credit facilities being
considered or processed by the Corporation.
1.4.3. Coordinate with LBP-Property Valuation and Credit
Investigation Department (PVCID), BAP Credit Bureau, Credit
Management Association of the Philippines (CMAP), other
credit bureaus and credit units of other financial institutions on
matters relating to exchange of credit information.
2. Legal Services Unit (LSU)
The Legal Services Unit shall provide timely legal services in support of
the lease and credit operations of the Corporation. These shall include,
but not limited, to the following:
2.1. Research, review and render opinion on legal matters related to
accounts under evaluation and/or for implementation.
2.2. Preparation and review of documents necessary in the
implementation of lease and credit facilities granted.
2.3. Provide assistance and advice on problematic or remedial accounts.
2.4. Prompt preparation and implementation of collection program for
each account endorsed to the unit “for appropriate legal action”.
2.5. Provide legal advice and prepare legal documents necessary in the
disposal of the Corporation’s acquired assets.
2.6. Provide such other legal services that may be needed for effective
and efficient leasing and credit operations.
2.7. Coordinate with Office of Government Council (OGCC) for the
resolution of accounts endorsed to legal.
3. Treasury Unit (TSU)
The Treasury Unit shall provide funding and cashiering services for the
lease and credit transactions of the Corporation. The following are its
functions:
3.1. Ensure that funds are available for the disbursements programmed
for all lease and credit facilities granted;
3.2. Prepare check payments to suppliers, borrowers and other
appropriate parties for lease and credit facilities;
3.3. Accept, issue receipts for and monitor the bank clearing of payments
from clients.
3.4. Safe keep, monitor and deposit on due dates postdated checks issued
by the client; and
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3.5. Monitor the Corporation’s bank accounts for payments of client made
through deposits to the bank accounts of the Corporation.
D. CREDIT APPROVING AUTHORITIES
The following are the approving authorities for all lease and credit
transactions of LBP Leasing Corporation:
1. President
2. Credit Committee
The Credit Committee shall be composed of five (5) members of the
Management team designated by the Board of Directors. Refer to
Attachment II.1 Credit Committee Composition and Attachment II.2 for
the Credit Committee Charter
3. Executive Committee
The Executive Committee has five (5) members including the Chairman
who are elected by the Board of Directors from among the directors of
the Corporation.
4. Board of Directors
The Board of Directors has eleven (11) directors including the Chairman
who are elected by the stockholders annually or as the need arises.
The signing and approving limits are presented in detail in the attached
Codified and Approving/Signing Authority (CASA). (Attachment II.3)
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III. FOUNDATION OF CREDIT OPERATIONS

A. PRODUCTS AND SERVICES
1. LEASING FACILITIES
Leasing Facilities
1.1. Financial Leases
Financial Lease is a credit facility where LBP Lease (lessor) acquires
fixed assets based on the requirements/needs of the client (lessee)
which are then leased by the client (Lessee) from LBP Lease (Lessor)
through payment of periodic lease amortization. The benefits and
risks of ownership of the assets are transferred to the lessee.
This facility allows enterprises to acquire equipment, motor vehicle,
lot and building and other equipment, to expand, upgrade or
modernize their operations. It also enables enterprises to match
financing terms with the earning potential of the capital asset,
preserve working capital and credit lines and address existing or
current budget limitation.
1.2. Operating Leases
Operating Lease is a credit facility where the client (lessee) makes
rental payments to LBP Lease (lessor) for the use of an asset over a
fixed period (normally, more than a year). Under the facility, LBP
Lease retains the benefits and risk of ownership of the leased asset.
At the end of the lease term, the lessee may opt to renew the lease,
purchase the asset at its fair market value or return the asset to LBP
Lease.
Operating lease facility is for clients who do not want to be burdened
with acquisition and disposition processes and will rather not have
the risks and benefits of ownership on the asset to be acquired. It
can only be granted for selected asset types that have relatively long
economic life and well established secondary markets.
Variants of Leasing Facilities

1.3. As to Service Component
1.3.1. Net Service Lease
A lease facility in which all cost in connection with the use of
the leased asset such as maintenance, insurance and taxes are
paid for separately by the lessee and are not included in the
lease amortization and/or rental payments to the Corporation.
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1.3.2. Full-Service Lease

A lease facility wherein the cost of all maintenance, insurance
and taxes are shouldered by the lessor and are imputed in the
lease payments of the lessee.
1.3.3. Semi-Service Lease
A lease facility where the lease rental payment of the lessee
includes the cost of at least one or two but not all of the
following (1) maintenance; (2) insurance or (3) taxes.
1.4. As to Availability
1.4.1. Non-Revolving Financial Lease
A financial lease facility processed and approved for a specific
asset or a group assets (multi-asset) to be acquired.
A multi-asset is granted to expedite processing of additional
requirements of the same lessee during the year by enabling
the client to draw without need of new approvals so long as
the cumulative net exposure of LBP Lease on assets drawn
against the facility does not exceed the amount approved.
The assets may be of the same type/category or different,
may be acquired in one batch or over a period of time, may be
specifically identified immediately or not.
1.4.2. Revolving Financial Lease
A multi-asset lease facility which allows the client to draw
continuously during the validity of the facility provided the
carrying balance (outstanding principal balance) of all its
leases does not exceed the approved limit. This facility
reviewed annually and provided to client/s with good credit
standing.
2. FINANCING FACILITIES
Financing Facilities
2.1. Fixed Asset Financing
This facility provides medium or long-term financing to clients and
may be granted to provide funding for the following:
 Acquisition of equipment or other capital assets to be secured
by the object to be financed.
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 Construction and/or improvement of client’s fixed asset/s that

may contribute to the expansion and improvement of their
business and will be secured by real estate and/or chattel
mortgages.
2.2. Working Capital Financing

This facility provides clients with a source of funds to finance their
permanent or short-term working capital requirements.
2.2.1. Credit Line
LBP Lease provides credit lines to clients to finance receivables
and/or purchase orders or contracts. Omnibus credit lines may
also be granted where collaterals or security are available.
Variants/Purposes of Credit Line

2.2.1.1. Receivable Financing
Financing facility that provides clients a source of
working capital for its operations based on the
assignment of its outstanding receivables that are duly
acknowledged/ confirmed for products and services
that had been delivered and accepted and not in
arrears. This may also include financing of installment
sales/receivables.
2.2.1.2. Purchase Order Financing
Financing facility provided to clients as a source of
funds to finance confirmed purchase/job orders from
established corporate or institutional customers and the
receivables arising therefrom. The proceeds can be
used to purchase materials and pay for other expenses
needed to deliver the goods and services that are the
subject of the purchase orders/contracts and shall be
payable upon collection from the customer.
2.2.1.3. Omnibus Line
A collateralized credit facility provided for various
working capital requirements of the client. This credit
facility allows client make multiple availments as long
as they do not exceed the line.
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As to Availability
2.2.1.4. Revolving
Financing line where the Corporation makes a
commitment to a client to make available a certain
amount of credit where the client can draw from as
they want. Each drawdown is debited from the amount
available and as it’s repaid the amount becomes
available again as long as it is within the approved
availment period.
2.2.1.5. Single Project
Financing facility granted to clients to finance the
funding requirements of a substantial purchase order.
Single or multiple draw down of proceeds is allowed
from the approved facility for the specific
project/undertaking as approved by the Corporation. It
is normally short-term in nature since this is an
extraordinary transaction during the course of the
client’s normal operation. Importation of goods or
equipment may be allowed as part of the approved
facility.
2.2.2. Permanent Working Capital Financing

Permanent Working Capital financing may be used to provide
minimum level of working capital necessary for continuous and
sustainable operation to carry on a business for clients who
experienced certain changes in business or financial condition
(e.g. increased business volumes/sales, change in credit terms
of receivables, etc.). It may be use for reprogramming of
cash flow, acquisition of inventories and other investment
requirements of the client to ensure continuous business
operation.
2.3. Receivable Discounting/Purchase

Financing facility that provides client with working capital to improve
liquidity through the discounted purchase of receivables due in the
future on a “with recourse” or “without recourse” basis. The trade
receivables must be duly acknowledged/confirmed for products or
services duly delivered and accepted and not in arrears. It is granted
to clients that can authorize the Corporation to collect for and in its
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behalf from the obligor. The obligor, on the other hand, must
conform to the assignment and agree to remit payment/s only to the
LBP Lease. The excess of collection from the obligor shall be
refunded to the client.
The basis of the discounting (amount discounted) shall be the face
value of the receivables less the required yield. Interest shall be
computed on the amount discounted and deducted in advance from
the amount discounted.
Variants of Receivable Discounting/Purchase
2.3.1. With Recourse
Endorser shall pay the endorsee if the maker dishonors the
note.
2.3.2. Without Recourse
Endorser avoids future liability even if the maker refuses to
pay the endorsee on the date of maturity.
3. SPECIAL CREDIT PROGRAMS

Special lease and credit programs may be developed by LBP Leasing
Corporation in partnership with asset suppliers or other institutions to
facilitate the processing and implementation of lease or credit facilities for
identified sectors.
 Vendor Partnership Program
 Institutional Consumer Financing
 Anchor-Based Program
 Other Special Programs
B. ELIGIBLE BORROWERS
LBP Leasing Corporation shall extend lease and credit facilities to the
following eligible borrowers subject to the requirements, design and features
of the facilities and to the evaluation and approval of the appropriate
approving bodies.
1. Government
2. Small and Medium Enterprises (SMEs) – enterprises or corporations
with asset size of not more than P100 million (excluding the value of land
used for the project) and must not be a branch, division or subsidiary of
any large corporation;
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3. Corporate Clients – Corporations or institutions with total assets (net

value of land used in the project) of more than P100 million as of date of
application;
4. Cooperatives (Coops) – association of person with common bond of
interest who have voluntarily joined together to achieve a lawful common
social or economic end and duly registered with Cooperative Development
Authority (CDA);
5. Financial Institutions (FIs) – countryside financial institutions (rural
banks), thrift banks (i.e. private development banks, savings and
mortgage banks, savings and loan associations), universal and
commercial banks, non-bank financial institutions such as finance and
leasing companies, cooperative banks and investment houses.
6. Clients for Special Financing Programs – individuals as part of an
institutional or special program credit package; and
7. Other entities or enterprises as may be deemed appropriate and
acceptable
C. RISK ASSET ACCEPTANCE CRITERIA

The Risk Asset Acceptance Criteria (RAAC) shall serves as the basic measure
of risk asset acceptance for all lease and credit facilities of the Corporation.
1. General RAAC
1.1. The standard RAAC is presented below:
Acceptance Parameters General Acceptance Criteria

a. Character  No credit or background findings on the client
and/or the major stockholders and key officers that
will have a significant adverse effect on the
operations of the enterprise/project.
b. Capacity  With well-defined source of repayment.
 With capacity to manage/implement the
business/project.
 Debt service cover of at least 1x or better at all
times.
 Business/project meets the viability and financial
ratios.
c. Condition  Industry outlook (where project/business belongs)
is favorable.
 No signs of pending major labor dispute.
 Exhibit acceptable profitability levels
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Acceptance Parameters General Acceptance Criteria

Shall meet any of the following:
 Business/project has links and/or promotes
countryside development.
 Business/project is aligned to the priority programs
of the government and consistent with related
government issuances.
 Contributes to countryside development by way of
providing support to forward and backward
linkages.
 Support the priority sectors of the LBP.
 Generate employment and with high multiplier
effect
d. Capital  Debt-Equity ratio shall be acceptable based on
industry standards or at least 80:20 where no
industry standard has been established.
1.2. Other major considerations include the following:

1.2.1. Credit extension should result to positive net yield for the
Corporation; and
1.2.2. Collateral securities as second way-out should be acceptable to
management.
1.3. The unified RAAC is expressed in terms of general credit
fundamentals that hold true regardless of the credit facility.
1.4. Other businesses and projects which do not fully comply with the
unified RAAC, including the program specific criteria/requirements
presented in the succeeding sections shall be properly justified in the
credit facility proposal and approved by the credit approving
group/authority.
2. Specific Criteria and Requirements
The following specific criteria shall be used to determine among others,
compliance with the unified RAAC and as a basis for evaluation consistent
with loan requirements and program guidelines.
2.1. Government
Acceptance Parameters Acceptance Criteria
a. Debt Servicing With sufficient budget available for
servicing obligations
b. Qualitative Criteria
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 Project must be duly approved by the proper authority
2.1.1. Local Government Units

a. Revenues LGU must have sufficient receipts
from Internal Revenue Allotment
(IRA) and its local revenues for the
last 3 years for its expenses and
projects.
b. Project Equity LGU shall contribute at least 10% of
the total project cost
c. Debt Servicing With sufficient budget available for
servicing of obligation
d. Qualitative Criteria
 The loan shall be based on the requirements of the project but should
not be more than the net borrowing capacity of the LGU based on
Bureau of Local Government Finance certification.
 Projects should be part of the LGU’s development plan.
 Project must be duly approved by the LGU’s Sanggunian Council thru a
resolution.
 Project should be viable and pass appropriate test of viability.
 LGU should manifest a good image of political leadership and
disciplined/progressive management of its financial resources.
2.2. Small and Medium Enterprises

2.2.1. For Start-up SMEs
a. Debt- Equity Ratio Not more than 80:20
b. Qualitative Criteria
 Industry has a favorable outlook
 Familiarity with the proposed project can be established
 No adverse finding on the owners and management
 At least 60% Filipino-owned, if corporation and 100% Filipino-owned,
if sole proprietorship
 Possess sufficient management and technical capabilities required by
the enterprise.
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2.2.2. For Operating SMEs

a. Profitability Profitable for the past 2 years
b. Debt- Equity Ratio Not more than 80:20
c. Qualitative Criteria
 No ownership dispute for the past two (2) years
 No major labor dispute for the past two (2) years
 No adverse finding on the owners and management
 At least 60% Filipino-owned, if corporation and 100% Filipino-owned,
if sole proprietorship
 Possess sufficient management and technical capabilities required by
the enterprise.
2.3. Corporate Clients

a. Profitability Profitable in nominal terms for the last
2 years
b. Retained Earnings Must be positive
c. Debt- Equity Ratio Not more than 80:20
d. Qualitative Criteria
 The corporation, its major stockholders and key officers must have
good credit standings
 No major dispute among owners and management for the past 2 years
 No major labor problems for the past 2 years
2.4. Cooperatives
a. Capitalization At least Thirty Thousand Pesos
(P30,000.00)
b. Profitability Profitable in nominal terms for the last
2 years
c. Debt- Equity Ratio Not more than 6:1
d. Past Due Ratio (for Coops engage Not more than 25%
in lending activities)
e. Qualitative Criteria
 Must be operating viably in the last 3 years
 Must have adequate and competent management and administrative
staff
 No major dispute among the Directors and members in the last 2
years
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 No material adverse feedback on the cooperative, directors and
management
2.5. Financial Institutions

2.5.1. Countryside Financial Institutions
a. Capitalization Minimum required capital by BSP per
circular 156 as amended
b. Risk Asset Ratio Not less than 10%
c. Past Due rate Not more than 18%
d. Reserve Requirement Meets reserve requirement per latest
BSP Report of Examination
 No Major dispute among owners and management.
 No material adverse feedback on the bank, owners and management.
 No significant negative findings, observations and/or comments from
BSP.
 There must be no substantial decline in deposits in the last 3 years
(not more than 20% per year)
2.5.2. Financing Companies and Other Non-Bank Financial

Institutions
a. Capitalization Complies with minimum capitalization
required by the Securities and
Exchange Commission (SEC) or the
appropriate regulatory authority
2 years
c. Capital to Risk Asset Ratio At least 10%
d. Current Ratio At least 1:1
e. Net Past Due Ratio Not more than 15%
f. Qualitative Criteria
 No Major dispute among owners and management
 No material adverse feedback on the institution, owners and
management
concerned regulatory authority
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2.5.3. Thrift Banks, Commercial Banks and Universal Banks

a. Capitalization Complies with minimum capitalization
required by the Bangko Sentral ng
Pilipinas (BSP)
3 years
c. Capital to Risk Asset Ratio At least 10%
d. Net Past Due Ratio Not more than 15%
 No Major dispute among owners and management
 No material adverse feedback on the bank, owners and management
BSP
2.6. Clients of Special Financing Programs

Acceptance Criteria
 Must be Filipino citizen of legal age but not more than 65 years of age
upon maturity of credit term
 Must prove adequate permanency of residence and easy accessibility
 Must have no pending administrative and/or criminal case filed
 Must comply with the specific requirements/guidelines of the program
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D. CREDIT PROCESS FLOW

PROCESS RESPONSIBLE UNITS RESPONSIBILITY
Prepare strategic plans and

Management marketing strategy
Market Identification
Account Management Prepare business plan consistent
Group with the overall corporate
directions
Credit Initiation
Origination Initiate, evaluate, negotiate and

Account Management package credit proposals.
Evaluation, Packaging Group Review credit proposals
and Initial Review
Review, endorse and approve

Review and Approval Approving Authority
credit proposals based on CA/SA
Gather and review all required

Credit Implementation Account Management documents from clients.
Group
Prepare and review availment
and legal documents.
Credit Documentation Legal Servicing Unit
Ensure compliance with
Releases/Availments Account Servicing approved terms and
Group conditions, and availment
policies.
Portfolio Management
Account Management
Administration
Group
Monitor/manage/
administer the account
until full payment/
settlement or administer
Orderly Payment Unforseen Events Legal Servicing Unit remedial measures in
case of problematic
accounts.
Remedial
Management Account Servicing
Group
Repayment/Recovery Loss
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IV. CREDIT INITIATION

Credit Initiation refers to the introduction of the products and services of the
Corporation to clients and the evaluation, packaging and approval of appropriate
credit facilities.
A. PROCESS FLOW
CREDIT INITIATION
Credit Origination
Source Input Process Output Customer
Approved Information Gathering

Call Report
Management Business Plan Client Calls AMG Head
Account Officer
Solicitation
Referrals
List of
Publications
Prospects Checklist of
Internet Provide checklist of
documentary
documentary Prospective Clients
requirements
requirements
Checklist of
Complete and submit Documentary Credit
Client
documentary
Account Officer documentary Requirements Evaluation
requirements
requirements and Approval

CREDIT INITIATION
Credit Evaluation and Approval
Credit Folder
File
Account Officer
Documentary Conduct Preliminary Application

Credit Prepare client
Requirements Review based on Report AMG Head
Origination credit folder
documents submitted
CIBI/
Request for CI/BI and Appraisal CIBI and
Appraisal Request Appraisal
AMG Head/
President
Application Report
Application Review and provide
with comments/
Account Officer Report initial assessment Account Officer
instructions
comments
Appraisal Report
CIAD Unit Credit
ICRRS
Investigation
Report
BBI
Account Officer
Assess client’s
Application business, financing Prepare financial
AMG Head/ Report with requirements and projections and CFP AMG Head/Team
President Instructions associated risks and credit facility Head
analyze financial proposal
statements
Business
External Sources A
Information
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Credit Initiation 22
CREDIT MANUAL

CREDIT INITIATION
AMG Head/Team Head
A ICRRS
Endorsed ICRRS
BBI
Endorsed BBI
CFP Review proposal and Endorsed CFP Approving

Account Officer
related documents Authorities
Endorsed ICRRS
Authorities
Approving
Endorsed BBI Approving

Authorities
AMG Head Evaluate proposal Account Officer
Resolution
Endorsed CFP
Approving
Approving Authorities Notice of Denial
Approved? NO
Authorities Resolution
Account Officer
Client
YES
Notice of
Approval
Prepare notice of
approval and basic Basic legal
legal documents documents Legal Counsel

CREDIT INITIATION
B
Legal Counsel
Review basic legal

documents for legal
Draft basic legal Reviewed basic
sufficiency and
Account Officer documents legal documents Client
compliance with terms
and conditions of
approval
Reviewed basic Signed basic

legal documents legal documents
Client
Notice of
Review, conform and
Approval Conformed NOA
Account Officer sign NOA and basic Account Officer
legal documents
Account Assistant
Signed basic
Account Officer/
legal documents
File Credit
Conformed NOA
Client File documents
Implementation
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B. RELATED PROCESSES
1. Credit Origination
This shall refer to the process in which the Accounts Officers (AOs) seeks
prospective clients in market and industries coherent with the marketing
plan prepared.
2. Credit Evaluation and Packaging
This shall involve collecting the required documents and gathering of
relevant information from the prospective client. In this process, the
Account Officers shall evaluate all credit information about the borrower
and the project for financing.
2.1. General Guidelines
2.1.1. The Account Officers shall collect all the required
documents and relevant information from the prospective
client based on the prescribed standard checklist of
requirements shown as Attachment IV.1. The
requirements are by no means complete. The Account
Officer, however, should ask for other requirements for
the client to better evaluate the proposed credit
transactions. Therefore, the list may be
expanded/shortened depending on the industry/project.
2.1.2. Credit evaluation is made against the credit fundamentals
and specific Risk Asset Acceptance Criteria (RAAC) set
forth by the Corporation. The Account Officer should
always be mindful of the various risks associated with the
account. In evaluating the credit fundamentals and the
RAAC should be considered.
2.1.3. No one person shall perform both the credit evaluation
and credit investigation/collateral appraisal.
2.1.4. The client’s credit ratings using the Corporation’s Internal
Credit Risk Rating System (ICRRS) shall also be
considered in the evaluation of accounts. Please refer to
Attachment IV.2 for the Implementing Guidelines for the
use of ICRRS.
3. Credit Approval
This shall refer to the process where an account is presented to approving
authorities for credit decision. The approving limits of the approving
authorities should be consistent with the Corporation’s Codified
Approving/Signing Authority (CASA).
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C. GENERAL CREDIT GUIDELINES

1. Pricing
1.1. Pricing of the credit transaction shall be based on LBP Lease’s
Reference Rate at the time of availment plus applicable spread.
1.2. Interest pricing shall consider the cost of funds of the Corporation.
1.3. Consideration in Pricing
The spread on the facility shall be determined using the various
considerations in pricing given in the following:
1.3.1. Prevailing Industry Rates
Due consideration shall be given to the interest rates
charged by other financing companies for similar
transactions of similar client types/categories in pricing.
1.3.2. Credit Standing /Rating of the Client
The spread to be used in setting the effective yield
transactions shall be based mainly on the credit standing
of clients that meet the LBP Lease risk acceptance criteria
as well as its rating based on the ICRRS.
Rating Range for Spread
Excellent From 2.0% to 3.5%
Strong From 2.5% to 4.5%
Good From 3.0% to 5.5%
Satisfactory From 3.5% to 7.0%
Acceptable Minimum of 4.0%
The Account Officer shall take note of the other
considerations in pricing in determining what rate in the
range shall be used on a facility.
Government accounts and special programs need not be
covered by the suggested spread.
1.3.3. LBP Lease Experience with Client
In pricing facilities for existing or past clients of LBP
Lease, considerable weight shall be given to the handling
experience of the Corporation with the client.
1.3.4. Object of Lease / Collaterals / Other Securities
Due consideration shall be given to the:
a. Object Lease
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The refer to the type and nature of asset/s to be

leased with respect to its recoverable value as well
as ease repossession and disposition in the event
of default.
b. Collaterals and Other Securities
The type (real property or personal property) and
the value of the collaterals as well as other forms
of security for the facility granted.
1.3.5. Amount of the Facility / Total Business Dealings
Because the administrative cost of client processing and
administration is not proportionate to the amount of the
facilities granted, the amount of the facility and/or the
total transactions of the client with LBP Lease shall be
considered in pricing.
2. Repayment Mode and Term
In structuring repayment mode the following considerations should be
taken into account:
2.1. Purpose or Use of the Facility
Repayment term of facilities granted shall always correspond to
the purpose and nature of the requirements. That is, short term
facilities shall be given for short term working capital requirements
and medium or long term facilities for permanent working capital
and acquisition of fixed assets.
2.2. Cash Flow of the Project and the Client
The repayment term and schedule must be structured to
correspond to the cash flow of the project and the client. That is,
business of cash build-up period, seasonality of sales of business
cycle, investment/expansion requirements and other debt-
servicing requirements of the clients shall always be considered in
the structuring of repayment schedule.
2.3. Economic Life of the Asset to be Financed
The repayment shall be never longer than the economic life of the
asset to be financed.
2.4. For short-term availments, the executed promissory note (PN)
should be maximum of one year with maturity falling on a working
day.
2.5. For term loan accounts, loan payments and interest re-pricing
should be scheduled to fall on the same transaction date. To
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CREDIT MANUAL
ensure that the transaction date for payments and re-pricing

coincides, the following modes of reckoning shall be proposed and
reflected in the CFP:
 Monthly;
 Quarterly;
 Semestral; or
 Annual
2.6. In instances when loan payment falls on a weekend or holiday, the
following policy guidelines shall be followed:
Principal
Adjusted
payment of Actual date/
Due/ Computation
Working Transaction Penalties
Transaction of Interest
Capital Date
Date
Financing
Payment on Declared Next working Number of None
PN Maturity holiday day days the PN is
outstanding
3. Availability Period
3.1. Availability period shall be within one year from the approval date
for all type of facilities.
4. Mode of Release/Availment
4.1. Financing that involves construction of buildings and other
infrastructure shall be released on a project completion basis.
4.2. The equity of the borrower should be fully in place before the
Corporation makes any loan release.
4.3. Loan proceeds for machinery and equipment acquisition preferably
be released directly to supplier/s or coursed via L/C.
Reimbursement on loans is allowed as long as the
equipment/asset has been acquired less than 6 months.
4.4. For sale and leaseback transaction, the Corporation shall
reimburse to the client the cost of the assets acquired.
5. Insurance
5.1. As a general rule, all insurable collateral shall be insured with an
insurance company accredited by Land Bank of the Philippines and
thru LBP Insurance Brokerage, Inc. (LIBI). Any exception shall be
approved by the approving authority based on CASA. LIBI shall
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CREDIT MANUAL
provide LBP Lease with an updated list of accredited insurance

companies on a periodic basis.
5.2. Buildings under construction that are being financed by the
Corporation should be covered by a Contractors All Risk Insurance.
Once completed, said building shall be covered by all risks
insurance.
5.3. Insurance coverages which are being secured/handled by LBP
Lease shall automatically be renewed upon the expiration of
coverage and the borrower/client shall be billed of the insurance
premium.
5.4. Prior to expiration of insurance coverage, clients who were
allowed to secure their own insurance coverage shall be informed
by LBP Lease of the expiration. The borrower shall renew and
endorse in favor of the LBP Lease the insurance coverage and
submit related documents to the Corporation. If the borrower fails
to renew the policy, the Corporation shall renew the insurance
coverage and book the premium paid as account receivable from
the borrower with interest rate aligned with the interest of the
loan. Payment shall first be applied to liquidate insurance
premium including interests, penalty charges, etc. A written
notice of renewal and request for reimbursement of the insurance
premium shall be sent to the borrower.
6. Collateral and Security Requirements
6.1. Acceptable Collaterals
In principle, a lease facility does not require hard collateral in as
much as the leased asset owned by LBP Lease can stand on its
own. However, the following are the acceptable collaterals for
some facilities which may require hard collateral:
6.1.1. Real Estate Mortgage (REM) on acceptable residential or
commercial properties.
6.1.2. Assets pertaining to the project, both existing or to be
acquired.
6.1.3. Other assets owned by the borrower not necessarily
related or pertaining to the project.
6.1.4. Other assets not owned by the borrower but legally
acceptable by virtue of a 3rd Party Mortgage.
6.2. Types of Collaterals
6.2.1. Real Estate Mortgage
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The conveyance of a real estate property as security for

the payment of the loan and conditioned to become void
upon such payment.
6.2.2. Chattel Mortgage
Similar to REM, except that the subject is chattel or
personal property
6.2.3. Hold-out on Deposits
Pertains to the transfer or setting over of deposits or of
rights or interest therein from one person to another, or
the act by which one person transfers to another, or
causes to vest in another, his right over said deposits. It
merely purports to convey the deposits as collateral in
order to secure the payment of the loan. If the borrower
pays the obligation on maturity, the transfer becomes null
and void.
6.2.4. Third Party Mortgage
This is executed when the borrower is not the owner of
the offered collateral.
6.2.5. Negative Pledge
An undertaking on the part of the borrower whereby he
agrees not to mortgage, encumber, transfer or dispose of
his fixed assets without the consent of the Corporation
while the obligation is outstanding.
6.2.6. Mortgage Trust Indenture
This is executed by a borrower who has a huge property
and has assigned a trustee/custodian of this property. All
the creditors will have to receive a Mortgage Participation
Certificate indicating the extent of the collateral portion
for the corresponding loan amount of each creditor.
6.2.7. Assignment of Receivables
Client transmits to the Corporation the rights, title and
interest against a third person either by way payment or
as a security.
6.2.8. Joint and Several Signatures (JSS)
Surety binds himself solidarily with the principal debtor.
However, in this undertaking the surety does not incur
liability unless and until the principal debtor is held liable.
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CREDIT MANUAL
In the suretyship, the creditor deals/transacts with both

the principal borrower and the surety.
6.2.9. Parent Guaranty
Written promise to pay for a debt in case of failure of the
principal debtor. In case of default, foreclosure shall be
done on the principal borrower first. The guarantor’s
property shall be subject to foreclosure if the total value
of properties of the principal debtor is insufficient to cover
the obligations.
6.2.10. Cross Guaranty
This exist when a person or a company guarantees the
loan of another and vice-versa.
6.3. Valuation of Collateral
Collateral Loan Value
Land 60-70% of appraised value
Building and Improvements 60% of appraised value
Chattels 50-70% of appraised value
Deposit Hold-out 100%
6.4. Evaluation of Collateral
In the evaluation of the collateral, attention must be focused on
the:
6.4.1. Reasonableness of the valuation;
6.4.2. Marketability of the asset; and
6.4.3. Realizability of the asset values.
6.5. Sureties executing the JSS shall secure their respective spouse’s
consent. Both spouses shall sign the surety agreement and should
submit Statement of Assets and Liabilities made under oath.
7. Credit/Background Investigation
7.1. Credit Investigations are conducted on the following:
7.1.1. principal borrower/s and co-borrower/s
7.1.2. surety/ies
7.1.3. key personnel/officers
7.1.4. third party mortgagor
7.2. Key personnel are defined as individuals who play major roles in
the business. The key officers may include:
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CREDIT MANUAL
7.2.1. President (or its equivalent);

7.2.2. Treasurer (or its equivalent); and
7.2.3. Other Key Officer (e.g. Chief Operating Officer, Finance
Officer, etc).
7.3. The key officers of financial institutions/ countryside financial
institutions shall not be subjected to CI.
7.4. For Countryside Financial Institutions (CFI), (including Rural Banks
and Thrift Banks), CI shall be conducted on the stockholders with
paid-up capital of equal or more than 10% and belonging to the
top 60% of the total stockholdings, but with a maximum of 6
stockholders.
7.5. For other Financial Institutions (FI), CI shall be conducted on the
Board of Directors (BOD). The BOD should include the Chairman
and four (4) members, preferably those with holdings of 10% or
more; or those representing corporate shareholders. The
stockholders/BOD of universal and foreign banks shall not be
subjected to CI.
7.6. For cooperatives, including co-op banks, CI is done on all the
members of the BOD.
7.7. For borrowers other than the FIs and co-ops, CIs are done on
stockholders with stockholders equal or more than 10% and
belonging to top 80% of the total stockholdings; thus, a maximum
of eight (8) stockholders can be subjected to CI.
7.8. In the event that a borrower’s stockholder is a corporation (i.e.
with stockholdings equal or more than 10% and belonging to the
top 80% of total stockholdings), the following guidelines shall be
followed:
 If the stockholder corporation belongs to the Top 1000
Corporations, there shall be no further CI on the corporation
unless warranted by circumstances;
 If the stockholder corporation does not belong to the Top 1000
Corporations, further checking with the Securities and
Exchange Commission (SEC) shall be conducted to verify that
the corporation is still in operations; and
 In highly justifiable cases, further CI on the stockholder
corporation’s stockholders may be conducted. However, this
shall be limited to stockholders with stockholdings equal or
more than 30% of the total stockholdings; thus, a maximum of
three (3) stockholders can be subjected to further CI.
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7.9. In case a borrower’s stockholder is a foreign corporation, checking

shall be conducted, if feasible, in the corporation’s country of
registration upon request to Landbank office in this country.
7.10. For Local Government Units (LGU), the following officials are
subject to a complete CI and may also be expanded to include the
Sanggunian Members who are directly involved in the
implementation of the project financed by LBP Lease:
7.10.1. For Municipality/City Government
 Mayor;
 Vice-Mayor;
 Treasurer; and
 Municipal/City Administrator
7.10.2. For Provincial Government
 Governor;
 Vice-Governor;
 Treasurer; and
 Provincial Administrator
7.11. For government sector clients, presidential appointees shall not be
subjected to CI.
7.12. CI should not be more than twelve (12) months or one year
7.13. For clients with cases filed against them, the Account Officers are
required to request opinion of Legal Counsel relative to the effects
on the account of cases filed against the borrower, its board of
directors (BOD), and/or key officers. This will ensure accuracy of
analysis of legal risks that LBP Lease needs to mitigate or address
if any.
7.14. The following borrowers shall be covered by CI on trade creditors
and/or suppliers:
7.14.1. Borrowers which are engaged in manufacturing or
construction;
7.14.2. Borrowers not belonging to the Top 5000 Corporations;
and
7.14.3. Borrowers whose business is new (2 years or less) in the
industry.
7.15. The following trade creditors/suppliers of borrowers shall be
exempted from trade checkings:
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CREDIT MANUAL
7.15.1. Affiliates or stockholders of the borrower; and

7.15.2. Those with offices located abroad.
7.16. Results of credit investigation shall be treated with strict
confidentiality. Any disclosure to any person or entity other than
LBP Lease may result to the cancellation of LBP Lease’s access on
the sources of this credit information such as the credit bureaus.
8. Grace Period
8.1. In general, financing with a term of more than one year may
include a deferred payment plan or grace period on principal
and/or interest.
8.2. An account shall merit a grace period on principal on the following
cases:
8.2.1. For the duration of the construction period, if project for
financing involves construction of building and
infrastructure;
8.2.2. If projected cash flow in the initial years of the project is
not sufficient to service the principal portion of the loan.
8.3. However, on exceptionally meritorious cases, initial amortization
may be deferred, but in no case shall the amortization date be
later than five years from the date the credit is granted; provided
further, that the projects are not start-up but rather an expansion
of existing projects or additional projects.
8.4. Capitalization of interest during grace period/construction period
for projects may be allowed.
8.5. Extension of grace period is subject to approval of original
approving authorities and it is the responsibility of the Account
Management Group to ascertain the viability of the projects to be
financed and to evaluate the capability of the borrower.
9. Fees and Charges
9.1. Borrower/client will be charged appraisal fee for the valuation of
collateral/equipment financed by LBP Lease.
9.2. Pre-termination fee of 2% of the outstanding principal balance
shall be charge by the Corporation when the account is taken-out
by another financial institution except when expressly waived in
the approval of the facility.
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10. Taxes
10.1. Income tax payments of clients should be disclosed in the CFP,
STOT or Restructuring Proposal and other approval media for
credit transactions.
10.2. Borrower/client shall submit tax clearance on the real properties
offered as collateral as proof that the real property taxes are
paid/updated at the time these are offered as collateral to LBP
Lease.
D. CONSIDERATIONS IN PACKAGING/STRUCTURING CREDIT TERMS

AND CONDITIONS
In structuring the terms and conditions of a credit or lease transaction, an
account officer should be reminded of the following:
1. Fund matching principle must be observed. Short-term facilities shall be
proposed for short-term credit requirements while term facility shall be
considered for project financing.
2. The terms and conditions should be flexible and responsive to the
changing economic environment, the rise and fall of industries and the
competition in the leasing and financing industry.
3. Common sense and good judgment is a must in structuring a credit
package. Credit decision cannot be based entirely on a static set of credit
guidelines or analytical techniques. A proactive stance is thus a must.
4. In structuring a credit package, terms and condition should not be limited
to the provisions in the credit manual. Other terms and conditions
appropriate to the project may be formulated provided said terms are
designed to minimize or address the associated risks.
5. The structure of a credit package, including the terms and conditions,
should be clearly stated in the Credit Facility Proposal (CFP) under the
section “Terms and Conditions”. The standard terms and conditions need
not be specified in the CFP, but should be reflected on the legal
documents and discussed with the client.
6. Reference should be made to point issues such as credit policies of LBP
Leasing Corporation, covenants governing the lease/loan, fees and
charges, etc.
7. Although a particular situation may not fit the definition of any of the
outlined suggested terms and conditions, good credit practice involves
solicitation of advice or consultation from concerned specialized units,
whenever appropriate.
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CREDIT MANUAL
8. All the deviations from the standard terms and conditions shall be
highlighted and justified in the proposal.
E. CREDIT APPROVAL MEDIUMS AND RELATED DOCUMENTS

1. Call Report
A record of an Account Officer’s visit to a borrower. Sample Call report
format is included as Attachment IV.3.
2. Credit Facility Proposal (CFP)
The document used in proposing credit to the approving authorities. It
contains the detailed information on the client, the transaction and/or
project, terms of condition, the results of evaluation of the financial
performance, projected financial statements, results of credit investigation
and the deviations from RAAC. Sample CFP format is included as
Attachment IV.4.
3. Special Transaction Offering Ticket (STOT)
The STOT is the document used in proposing the following among others:
3.1. Amendment of/regularization of deviations from the approved terms
and conditions;
3.2. Partial release/substitution of collateral; and
3.3. One-time or case-to-case transactions
Sample STOT format is included as Attachment IV.5.
4. Basic Business Information (BBI)
Contains a brief background on the borrower and the borrowing firm.
Sample BBI format is included as Attachment IV.6.
5. Credit Investigation Report (CIR)
Summarizes the results of the credit investigation conducted on the
borrowers thru credit bureaus which may include BAP, NFIS, CMAP, LBP
Loandex and other credit bureaus. Sample CIR format is included as
Attachment IV.7.
6. Appraisal Report
Covers the results of the appraisal conducted on the collaterals offered or
the asset to be leased when applicable. It shows the bases for valuation
made. Sample Appraisal Report format is included as Attachment IV.8.
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F. ADVICE OF APPROVAL AND DISAPPROVAL OF CREDIT FACILITIES

1. The Account Officer must ensure that every credit extension is supported
by the required approvals that shall be properly documented.
2. The client should be informed of the approval of his application through a
Notice of Approval (NOA) signed by the President. The advice shall
clearly state the following information:
 Type of facility
 Amount approved
 Date approved
 Basic terms and conditions
 Other pre-release and post-release conditions
A copy of the NOA with the client’s conformity shall be returned to the
Corporation. Sample NOA format is included as Attachment IV.9.
3. Should the account be denied, a Notice of Denial/Disapproval shall
likewise be sent signed by the President. Sample Notice of Denial is
included as Attachment IV.10.
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V. CREDIT IMPLEMENTATION
A. PROCESS FLOW
CREDIT IMPLEMENTATION
Credit Documentation and Availment
Credit
Initiation
Account Officer/Account Assistant
Review/validate
Availment
supporting Validation Report
Client Request
documents (PO,
contracts, etc.)
Request Price
Validation/Appraisal/ CIBI and
File Signed basic Inspection
Review and Appraisal
legal documents
processing of
availment request
Conformed NOA
Request
Insurance
LIBI
Quotation
Validated Report
Account Assistant
Prepare Availment Memo

Account Officer
Availment Memo
Review results of
Results of Price
validation,
Validation AMG Head
appraisal,
inspection
CIAD Unit Accomplished
Accomplish
availment
Approved availment
checklist
Appraisal/ checklist A
Inspection Report

A Accomplished Accomplished
availment availment
AMG Head
checklist checklist
Endorsed
Availment Memo Evaluate availment
Account Officer Availment Memo President
memo
Accomplished
availment Approved
checklist YES Availment Memo
President
Endorsed
AMG Head Availment Memo Approved? Account Officer/
Account Assistant
Disapproved
NO Availment Memo
Account Assistant
Account Officer/
Prepare and review

Approved Draft Legal
draft of legal
Account Assistant Availment Memo Documents Legal Counsel
documents for
availment
Legal Counsel
Draft Legal Finalized Legal

Account Officer/ Review and finalize
Documents Documents Signatories
Account Assistant legal documents
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Credit Implementation 37
CREDIT MANUAL

Account Officers/Account
B Updated Credit File

Other requirements Folders
Assistants
Signed and Accomplished

Notarized Credit Review accuracy
Update credit Availment Documentation &
Signatories Documents and completeness
folders Checklist Admin Unit
of documents
Request for
Credit
Registration of
Investigation
Mortgage
and Appraisal
1
Documentation and Administration Unit
Review documents
completeness, accuracy
Account Officer/ Credit Folders
and compliance to
Account Assistant
approved terms,
conditions and policy.
Exception Sheet Account Officer/

With exceptions? YES
Account Assistant
NO
Authorize release of Release authority

proceeds C

C Debit Advice/
Release authority Release Bank/Client/
Cheque
Account Officer/Account Assistant
proceeds Supplier
Central Liability
Documentation & Prepare Implementation Monitoring and
Admin Unit implementation Memo Billing
memo Document
and Collateral
Administration
Memo with Deed

Exception Sheet
Justified? YES Seek approval of Undertaking President
NO
Corrected
Correct
exception 1
exceptions
Memo with Deed Approved

Account Officer/
President
of Undertaking Approved? YES Exception Memo 1

Account Assistant
Disapproved
Account Officer/
NO Exception Memo
Account Assistant
Account Assistant
Account Officer/
Disapproved Corrected
Correct
President Exception Memo exception 1
exceptions
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B. RELATED PROCESSES
1. Credit Documentation
This shall refer to the substantiation of the decisions and actions on all
approved accounts. This involves completion of all legal documents to
implement the credit transaction. A checklist of documents needed for
Credit Documentation is presented as Attachment V.1.
1.1. General Requirements
1.1.1. Contracts and documents implementing the credit
transaction shall be signed in accordance with the CASA
and the borrower and shall be reviewed for legal
sufficiency (see Attachment V.2 for the sample review
sheet).
1.1.2. The terms and conditions stipulated in the credit
agreements shall be consistent with and in accordance
with the Credit Facility Proposal (CFP).
1.1.3. Credit availments/drawdowns shall be supported by
evidence of indebtedness/obligation and/or appropriate
collateral/security agreement duly executed by the
borrower.
1.1.4. In case of line extension, proper approval and
documentation shall be secured.
2. Credit Availments/Disbursements
This is the process wherein the terms and conditions of the credit
agreement with the clients are executed. Proceeds of the client’s
borrowings are released at this stage.
2.1. General Guidelines
2.1.1. Release or availment shall be in accordance with the
approved terms and conditions and subject to completion
of all necessary and appropriate legal documents as
evidenced by a certificate of legal sufficiency.
2.1.2. For availments approved on an exception basis, there
must be close monitoring until the terms and conditions
(e.g., registration of REM/CM or payment of RETR after
any availments, etc.) have been complied. Exceptions
shall be specifically stated in the CFP as post-release
requirements and compliance therewith shall be time-
bounded. Deletion of such exemption or extension of
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timeframe shall be requested through a memo proposal to

be approved by the original approving body.
2.1.3. Prior to the release or availment, the following conditions
should be met:
a. All pre-release requirements and conditions have
been complied with and proper legal
documentation has been completed, including the
registration of mortgage documents with
appropriate registrars.
b. The credit line has not expired or has not been
exceeded.
c. Borrower has no past due availment.
d. Amount to be released will not exceed the
approved credit limit (for credit line), or in
accordance with the approved schedule of releases
(for term loans).
e. All availment documents such as Lease Schedule,
Promissory Note (PN) and Disclosure Statements
have been signed by the borrower, and signed by
the Account Officer/or LBP Lease’s representative
as witness; and other documents duly
authenticated; and
f. All PNs with Deed of Assignment or Undertaking
should be accomplished and executed by the
borrower and signed by the Account Officer as
witness.
2.1.4. For lease transactions, proceeds shall be released to the
supplier of the object of lease unless otherwise provided
in the CFP or it is a sale and leaseback transactions.
2.1.5. Unless otherwise provided in the CFP, loan proceeds shall
be credited directly to the Land Bank account of the
borrower or to the suppliers in cases where proceeds are
for the acquisition of machinery, equipment and other
similar expenditures.
2.1.6. Releases should pass through different signatories
authorized under the CASA. No one person or division
can singularly approve or effect a release.
2.1.7. For leases/term loans released in tranches, each tranche
or availment/loan release shall be covered by a separate
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PN. The maturity of the loan reflected in the succeeding

PNs (covering succeeding tranches) shall mirror the
maturity reflected in the first PN (covering the first
release). There is no need to consolidate the PNs, unless
otherwise required by the special financing program.
C. STANDARD DOCUMENTS AND DESCRIPTION

1. Account Management Group shall secure legal sufficiency from the Legal
unit for all necessary legal documents prior to the initial
release/restructuring of or availment from the credit facility. In the case
of syndicated and restructured loans/leases of AMG, preparation, review,
and finalization of loan/leases and collateral documents are the
responsibility of the Legal Services Unit.
2. Account Officers (AOs) shall serve as witness to the signing of all legal
documents and shall verify the signatures of borrowers to ascertain
authenticity. Names of all signatories shall be printed. To this effect, a
Board Resolution (for corporations, cooperatives and associations)
containing the incumbent officers and their respective officers shall be
submitted. Specimen signatures of all signatories, including the Corporate
Secretary, shall be maintained and updated yearly.
3. Standard credit and collateral documents shall be used as evidences of
indebtedness or to provide support to credit extensions.
4. Other transactions covering specific needs of clients which are not
covered by the documents presented below shall be supported by
documents especially prepared to capture the peculiarities of the account.
In all case, AMG shall seek the assistance of the Legal Servicing Unit in
the preparation of legal documents and these shall be reviewed for legal
sufficiency.
5. Principal Credit/Lending Documents
5.1. Master Lease Agreement
Core document in a lease transaction. It covers all the terms and
conditions relating to the lease of the property between the lessor
and lessee. It makes the lease schedules and other pertinent
documents as part of the master lease agreement. Sample format
is included in Attachment V.3.
5.2. Loan/Line Agreement
Contract between LBP Leasing and the client covering the grant of
loan by the former to the latter under certain terms and
conditions. Generally, it stipulates the loan type and purpose,
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amount, interest rate, penalties and charges, manner of

repayment, availment, events of default, representations,
warranties, covenants, and other stipulations or provisions not
generally covered by the Promissory Note (PN) or collateral
document documents securing the obligation. Sample format is
included in Attachment V.4. For other types of loans and special
arrangements, “tailor-made” documents to be prepared by Legal
Services Unit may be used.
5.3. Credit Line Agreement
Core document covering the terms and conditions whereby the
proceeds of the credit facility are to be used for financing
receivables (promissory notes, purchase orders, contracts,
commercial papers, bills of exchange, checks) from entities
acceptable to LBP Lease.
5.4. Restructuring Agreement
This is used to document new terms and conditions affecting
loan/lease transactions in instances where borrower fails to meet
his maturing obligations and/or by way of payment arrangement.
See Attachment V.5 for Restructuring Agreement.
6. Availment Documents
6.1. Lease Schedule
Forms part of the Master Lease Agreement. It describes the
property to be leased and the financial terms (lease payments,
lease term, security deposit). See Attachment V.6 for Lease
Schedule
6.2. Promissory Note (PN)
An unconditional promise in writing made by one person to
another, signed by the maker, engaging to pay on demand or at
fixed or determinable future time a sum certain in money to order
or to bearer. It is a principal evidence of indebtedness and is to
be considered along with the loan or credit line agreement.
Sample PN shown on Attachment V.7.
6.3. Disclosure Statement
A document disclosing to the client the details of the loans to be
released. The disclosure statement is attached to the PN.
Sample Disclosure Statement is shown on Attachment V.8.
6.4. Amortization Schedule
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A table showing the amount of principal and the amount of

interest that comprise each payment until the full payment of the
loan at the end of its term. Sample Amortization Schedule is
shown on Attachment V.9.
7. Collateral/Security Documents
The collateral or security documents are executed to accompany credit
agreements. These are, in effect, accessory contracts that cannot exist or
stand-alone without the principal lending documents.
7.1. Real Estate Mortgage (REM)
A contract by which a client or third party mortgagor secures in
favor of LBP Leasing the fulfillment of principal obligation
subjecting as security immovable (real) properties or real rights
over them in the event the principal obligation is not fulfilled at the
time stipulated. A sample REM is shown in Attachment V.10.
7.1.1. The encumbrance shall be duly registered with the
Register of Deeds (RD) of the province or city where the
property is located, and annotated at the back of the title.
The description of the real property and improvements
thereon shall be indicated in the REM contract.
7.1.2. Only 1st REM is allowed. If REM over a property that is
subject to other superior lien is accepted as collateral, this
must be set forth in the proposal and approval.
7.1.3. As a general rule, the full amount of loan/lease exposure
shall be covered by REM, unless the approval provides
that only a specific amount is to be secured. In this case,
a lower amount than the total exposure may be covered
and registered.
7.1.4. Prior to the registration/annotation of REM, updated real
estate tax receipt (RETR) and tax clearance of real
properties and improvements offered as collateral shall be
submitted to LBP Leasing. RETR shall be submitted yearly
as long as the loan is outstanding.
7.1.5. Likewise, a Certificate of Non-Tenancy and Certification
that collateral lot is not covered by CARP (for lots
exceeding 5 hectares) shall be submitted for lands
classified or declared as agricultural.
7.2. Mortgage Trust Indenture (MTI)
A type of mortgage given to a trustee for the purpose of securing
numerous creditors.
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7.3. Chattel Mortgage (CM)

Similar to REM, except that the subject is chattel or personal
property.
7.3.1. The CM must be registered with RD in the province or city
where the owner resides and the mortgaged chattel is
located or ordinarily kept. In case of motor vehicle, the
mortgage must be further registered with the Land
Transportation Office (LTO). The chattel or personal
property, including the serial number or other
identification marks, shall be described in the contract.
Other movable properties shall be registered in
appropriate government agencies when required. In case
of marine vessels or other sea faring vessels covered by
the CM, it is sufficient that the mortgage be registered
only in Maritime Industry Authority (MARINA).
7.3.2. In the case of crops grown on a piece of land, if the crops
and land belong to the client, a REM shall suffice.
However, if the land is not owned by a client (e.g.,
borrower is just a lessee), a CM on the crops shall be
executed.
7.3.3. The loan amount of the chattel or personal property shall
be indicated in the CM contract and registered with the
ROD.
7.3.4. The CM shall be supported by original copies of the duly
encumbered Certificate of Ownership. A sample CM is
shown on Attachment V.11.
7.4. Assignment of Receivables
A bilateral contract whereby one person transmits to another his
rights, title, interests and actions against a third person either by
way of payment or as a security.
7.5. Joint and Several Signatures (JSS)/ Comprehensive Surety
Agreement (CSA)
Binds the key officers and management solidarily or severally with
the principal borrower making them liable to LBP Leasing in case
of default/non-payment due to misappropriation, fraud,
mismanagement, etc.. The CSA aims to make the key
officers/management jointly liable to loan/lease defaults due to
causes other than force majeure.
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7.5.1. As a general rule, the CSA shall be required for all types of
credit facilities. The majority of officers and management
shall be required to execute a CSA. The CSA must be
updated regularly (every time there are changes in the
Board of Directors who signed the agreement) by
requiring the new set of officers to execute the
agreement. It shall be the AOs who shall ensure the
updating of the CSA, particularly the term loans. If the
surety/officer is married, the spouse shall also sign the
CSA.
7.5.2. The names of the signatories of the CSA shall be specified
in the collateral/security box of the CFP. Should there be
exemption from the list of individuals required to sign in
the CSA, said exemption should be stated in terms and
conditions of the CFP. The net worth of individuals
signing the CSA shall likewise be indicated, which shall be
supported by a Notarized Statement of Assets and
Liabilities. A sample CSA is shown on Attachment V.12.
D. FACILITY SPECIFIC GUIDELINES FOR AVAILMENTS

1. Availment on Leasing Facilities
1.1. Availment shall be covered by approved availment memo.
1.2. Asset documents such as Sales Invoice, Delivery Receipt, and
other related documents (Original) shall be submitted.
1.3. For second-hand equipment, Appraisal Report shall be submitted
which shall serve as the basis of the asset cost.
1.4. All other documents as required in the Notice of Approval shall be
submitted.
1.5. Releases may be made in the following manner:
1.5.1. One-time/lump sum release
a. For acquisition of machinery/equipment and motor
vehicles, upon verification that technical
specification of delivered items are the same as
those indicated in the pro-forma invoice and they
are in good running condition.
b. For sale and leaseback of lot and building, upon
submission of Appraisal Report and ownership on
the TCT and TD are transferred to LBP Leasing.
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1.5.2. Partial release

c. Allowed for projects whose approved drawdowns
were based on percentage of completion.
Availment shall be based strictly on drawdown
schedule.
a. Prior to releases, LBP Lease appraiser shall make a
validation/inspection report.
b. For imported equipment, validation/inspection to
validate the conformity with approved
specifications shall be made upon arrival.
2. Availments on Fixed Asset Financing/Permanent Working Capital
Financing
2.1. Availment shall be made strictly in accordance with the approved
drawdown schedule.
2.2. For purchase of machinery/equipment, proceeds shall be released
upon verification of delivery and registration in the name of the
borrower. Inspection, test-run and acceptance by borrower shall
be undertaken prior to loan release.
2.3. Borrower’s equity shall be in place before a loan release is made.
2.4. The approved required collateral cover should be maintained at all
times.
2.5. Prior to release, LBP Lease appraiser shall make a
validation/inspection report. However, releases can be made prior
to inspection/appraisal especially for brand new equipment.
2.6. For imported equipment, inspection to validate the conformity with
approved specifications shall be made upon arrival.
submitted.
3. Availments on Working Capital Financing
3.1. Availment from the credit line may be allowed at any time and for
any number of times from the date of its approval until expiry
date, provided the total outstanding availment does not exceed
the approved line.
3.2. Availment from the credit line should be disallowed if the Account
Management Group notices a material deterioration in the ability
of the borrower to meet his loan/lease obligations.
3.3. Availment shall be covered by approved memo.
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3.4. For Receivables Financing, Purchase Order and/or Sales Invoice

shall be submitted (Certified True Copy by the Account Officer).
3.5. For Receivable Discounting, checks for discounting shall be
submitted (Original).
submitted.
E. RECEIPT AND MAINTENANCE OF CREDIT DOCUMENTS

1. All original documents related to each availment shall be reviewed and
maintained by the Account Servicing Group (ASG).
2. Exceptions, deviations or deferrals from standard terms and conditions
shall be subject to approval by the original approving body. This may
include instances where the transfer of title is in process and may be
completed in 3 months, provided no legal impediment exists to the
transfer, and the Deed of Sale is submitted to LBP Leasing.
3. Approval of exceptions by the original approving body must be secured
prior to the execution of Deed of Undertaking by the borrower.
F. RELEASE OF COLLATERALS AND PREPARATION OF RELATED

DOCUMENTS
1. Cancellation of mortgages and release of collateral are allowed upon full
payment of the loan/lease, including other attendant obligation such as
insurance, real estate taxes, etc. advanced by LBP Lease.
2. Release of mortgages, guarantees, and other documents after the full
payment of the loan/lease shall be approved by the President, consistent
with the CASA provisions.
Please refer to Attachment V.13 for the sample format of Request to
Borrow/Release Securities.
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VI. CREDIT ADMINISTRATION AND ACCOUNT MONITORING

Credit administration and account monitoring refer to proper provision of credit
support, control systems and other practices necessary to manage outstanding risk
assets. Timely repayment of obligation by a client is an indicator of good credit
administration.
A. PROCESS FLOW
CREDIT ADMINISTRATION
Account Monitoring
Call Report
File Credit Folders Visit client

regularly
Incident Report AMG Head/

Account Management Group
President
Business and Business reports

Monitor business Incident Report
Industry and news
development
development
Certificate of Full Undertake account Cancellation of

Documentation
Payment settlement Mortgage Client
and Admin Unit
activities
Release of Hold-
out
Client Feedback
Survey

Account Monitoring
Periodic
Monitor compliance with
Documentary
Client terms and conditions of
Requirements
approval
 Monitor Transmittal report

compliance with
and submitted Documentation &
approved post-
Account Management Group
release
documents Admin Unit
requirements
 Monitor payments
 Monitor
submission of Annual Loan
AMG Head/
File Periodic reportorial Review Report
Credit Folders requirements President
Updated credit File

Complied? YES folder
Reminder letter to
NO client Client
Incident Report AMG Head/

President
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Central Liability Monitoring and Billing
Implementation Prepare Subsidiary File

Credit
Memo subsidiary Ledger
Implementation
ledger
Prepare billing Billing

Client/AMG
statement
Journal
Treasury Servicing Official Receipt Prepare journal Journal Vouchers
Voucher
Unit entries
Recording
Update
Monthly Reports
Subsidiary Management
Ledgers
Certificate of Full
Payment AMG

Document and Collateral Administration
Credit and Legal

Documents
Credit Implementation
Check Set-up security Security folder

Documentation Memo
completeness folder
and Availment
Post collateral Collateral File

details for database
monitoring
Safekeeping and
monitoring of
collateral
document
movement
Monitoring and filing of

Periodic
periodic submissions Updated security
Account Officer/ Documentary
of documentary folder
Account Assitant Requirements
requirements for
collaterals
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Insurance Monitoring
Updated
Initial Insurance Check and post File
Credit Insurance
Policy details for
Implementation Database
monitoring
Monitor Request Renewal

insurance of Insurance
LIBI
policies for Policy
renewal
Prepare
Check and post
Insurance Policy documents for Payment request Disbursement
LIBI details for
payments of Process
monitoring
premiums
Monitor clients’
payment of
insurance
File premium
Prepare billing
Billing
for insurance Client
premium

Insurance Claim Assistance and Monitoring
Accident report
Check Updated security File
and supporting Inform insurance
Client completeness of folder
documents company
documents
Assist clients in
claim settlement
Proceeds of claim
Monitor settlement
settlement Client
of claim
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Credit Investigation and Appraisal
Credit Investigation and Appraisal Department
Credit
CIBI/ Conduct CIBI
Investigation ASG Head/
Credit Initiation Request thru credit
Report President
bureaus
Request for
Registered
Documentation Registration of Register DAU/Account
mortagage
and Availment Mortgage mortgage Officer
Periodic Inspection Report

inspection of or Updated
equipment and/ Appraisal Report
Account or property
Account File ASG Head/
Monitoring President
Periodic Updated bank
updating of checking report
bank checkings
ASG Head/President
Credit Reviewed Credit

Review credit
Investigation Investigation
investigation
Report Report
report
CIAD
AMG
Inspection Report
Reviewed
or Updated Review appraisal
Appraisal Report
Appraisal Report report
B. MAJOR AREAS FOR CREDIT ADMINISTRATION AND ACCOUNT

MONITORING
1. Compliance to Terms and Conditions
1.1. The Account Officer shall ensure that availments under the
approved credit facilities conform to the terms and conditions
stipulated in the approved Credit Facilities Proposal (CFP).
2. Collection of Loan Amortization
2.1. Prompt Payment of Accounts - All outstanding lease/loans must be
monitored closely to ensure prompt payment at maturity of the
amortization and any other charges or expenses associated with
the transaction.
2.2. Collection of Past Due Obligations - The Account Officer should
promptly handle past due obligations for collection. Remedial
actions should be promptly instituted to keep the account in
current status.
3. Compliance with Key Covenants
3.1. Lease transactions and financing facilities must be monitored
periodically to ensure compliance with key covenants, repayment
schedule, and other terms and conditions governing the facility.
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Call reports should be prepared to record the result of account

monitoring.
4. Periodic Submission of Requirements
4.1. Lessees/ Borrowers with outstanding credit facilities or availments
with LBP Lease shall submit the documents that are required on a
periodic basis, as stipulated in the lease/loan agreement. The
documents include, but are not limited to audited financial
statements evidencing the current financial performance and
condition of the business, the real estate tax receipt, business
permits, etc.
4.2. In the case of cooperative accounts, submission of financial
statements shall be made once a year unless otherwise specified
in the terms and conditions of the credit facility.
4.3. To expedite renewal of lines and administration of account, the
Account Officer should closely monitor the following:
a. Availability end dates for credit lines; and
b. Submission of Financial Statements by borrowers.
5. Monitoring of Industry Situation
5.1. Industry and market developments shall be regularly monitored
and the Account Officer should evaluate the impact of any
development in the industry on the lease/loan account. If the
industry development signals a potential problem, a client call to
discuss the issue with the lessee/borrower shall be conducted as
soon as possible.
6. Conduct of Client Calls
6.1. The Account Officer shall conduct and document results of client
calls and project inspection via call reports. Information necessary
to properly evaluate the status of the client and the project should
be captured in the call report.
6.2. Frequency of Client Calls
Client calls shall be conducted in the following frequency:
Type of Account Frequency of Client Call
Government Accounts Minimum of once every semester
Corporate Accounts Minimum of once every semester
SME Accounts Minimum of once every semester
Financial Institution Accounts Minimum of once every semester
Within 1 months after release and
Cooperative Accounts
every 3 to 6 months thereafter
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6.3. For classified accounts, client call should be done more often.
7. Inspection of Supporting Securities File
7.1. Supporting securities shall be subject to periodic
inspection/appraisal by the internal Inspector/Appraiser to validate
the existence/adequacy of the supporting collateral vis-à-vis
outstanding risk.
8. Appraisal/Inspection of Collaterals/Leased Assets
8.1. Periodic inspection and appraisal of leased asset and supporting
collaterals must be done to validate the condition/existence and
adequacy of collateral vis-à-vis the outstanding risk, respectively.
8.2. The appraisals/inspection shall be performed using the following
schedule:
8.2.1. For new loans/leases, credit line renewal, and
restructuring, date of appraisal reports shall not be more
than six (6) months prior to approval of transaction;
8.2.2. For properties offered under dacion and/or compromise
settlement and redemption of foreclosed properties,
appraisal reports should not be more than three (3)
months; and
8.2.3. For restructuring of loans exceeding P5.0 Million, the
appraisal of collaterals should be done by an independent
appraisal company accredited by Bangko Sentral ng
Pilipinas (BSP).
8.3. Periodic inspection and appraisal of financed equipment and/or
supporting collaterals must be done to validate the adequacy of
collateral vis-à-vis the outstanding risk.
9. Credit and Background Investigation
9.1. All Credit Investigation reports shall not be more than one year
(12 months) prior to approval of transaction or during line
renewal.
9.2. Hereunder is the matrix of the schedules for the updating of
inspection/appraisal and CI subject to the conditions stated below:
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Frequency
Credit Investigation
Type of Account Working Lease/Fixed
Appraisal
Capital Asset
Financing Financing
Government Two years after date
Once a year Once a year
Accounts of last appraisal
Corporate Two years after date
Two years after date
SME Accounts Once a year Once a year
of last appraisal
Financial
Two years after date
Institution Once a year Once a year
of last appraisal
Accounts
Cooperative Two years after date
9.3. Updating of inspection and appraisal shall be done every two (2)
years after the date of last inspection/appraisal provided that the
account is in current status. The Account Officer shall request for
inspection and appraisal once an account becomes past due. The
Account Officer may also request earlier appraisal if required for
additional facilities or renewal.
9.4. All classified accounts including restructured and items in litigation
shall be subject to Annual inspection and appraisal;
9.5. Marine vessels shall be subject to Annual inspection;
9.6. The Account Officer shall prepare the appropriate recommendation
for approval in case the updating of appraisal will be endorsed to
accredited appraisal company of LBP Lease and that the appraisal
fees will be shouldered by LBP Lease.
C. ANNUAL REVIEW OF ACCOUNTS (TERM LOAN REVIEW)
1. A systematic procedure should be in place to ensure periodic and timely
review of the credit and its collateral and security.
2. The Account Officer shall conduct an annual credit review of facilities with
tenor that is more than three years to assess and monitor conditions of
existing credit facilities granted. The following shall be exempted for the
review:
2.1. Financing facilities for government accounts; and
2.2. Financing facilities for permanent working capital
Please see Annex VI.1 for the Guidelines in the Conduct of Credit Review
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D. CREDIT FILE MAINTENANCE

1. Credit Folders
1.1. Credit folders must be set up and maintained for each borrower
for the immediate reference and guidance of LBP Lease officers,
particularly the Account Officers. These are the AMG Client’s
Master and Facility Folders and ASG’s Security Folder and
Availment Folders.
1.1.1. The AMG folders contain original of all credit file
documents. On the other hand, the security folder and
availment folder of ASG also contain the original copies of
all documents.
1.1.2. The AMG folders are used and accessed for the day-to-
day operation of the Group, while the Security folder and
Availment folder are kept in the Secured File Room of the
Account Servicing Group.
1.2. It is the responsibility of the Account Officer to ensure that credit
folders under his responsibility are kept in locked cabinets at the
close of each business day. The Account Officer shall maintain
order in the filing of credit folders.
2. Credit Files
2.1. Credit files refer to all the documents that are related to the
account. These shall include, but not limited to records of LBP
Lease’s past experience with the client, the financial statement
furnished by the lessee/borrower, the credit facilities proposals,
financial projections, business background information, CIR,
appraisal report, call reports, inspection reports, business
registration and other permits, real estate tax receipts. A separate
file for the insurance policy and LTO CR/OR shall be maintained by
the Documentation and Administration Unit in the Account
Servicing Group for safekeeping and monitoring of renewals.
2.1.1. All photocopied documents submitted by the client (e.g.
Articles of Incorporation, Corporate By-Laws, etc.) should
be stamped “Certified True Copy” upon presentation of
the original copy and authenticated by the Account Officer
by signing over his/her printed complete name and the
date when he/she signed the documents, upon
presentation of the original copy.
2.2. The credit files provide Account Officers a convenient reference
about the basic information on the subject, and a history of the
credit relationship with the borrower.
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2.3. Information related to the account found in newspaper clippings

may be filed in the AMG folders.
3. Access to Credit Folders and Files
3.1. Credit folders and files must be treated as confidential and only
authorized personnel (those involved in credit and senior officers)
may have access to these files.
3.2. Access to credit files/folders by Account Officers or other officers
(e.g. auditors, legal officers, etc.) shall be against proper receipts
as approved by the AMG Group Head.
3.3. Credit folders and files are not to be taken out of LBP Lease
premises without the approval of the AMG Group Head. In the
case of securities and availment folders, this shall be subject to
the approval of ASG Group Head.
3.4. The AMG Group Head and Documentation and Administration Unit
of ASG shall ensure that borrowed folders are returned on time
with no single file missing.
3.5. Credit folders and files sent via messengers or people not
connected with LBP Lease should be placed in sealed envelope.
4. Maintenance/Culling/Retention Period
4.1. The documents in the credit folders must be reviewed and
maintained in good order. For immediate access to complete and
organized information, Account Officers and Documentation and
Administration Unit shall arrange their respective credit folders and
retain the documents until these documents are ready for
disposal.
4.2. The Working Files of the Account Management Group shall be
disposed 5 years after the full-payment/settlement of the account.
The Security Files of the Account Servicing Group shall be
disposed 5 years after the full-payment/settlement of the account.
4.3. Where materials sent to credit files do not have a defined
retention period, the material shall be sent back to the Account
Officer who must stipulate the retention period.
4.4. Before disposal, the Credit Officer shall pull out basic legal
documents from the file and retain these documents in the
Secured File Room. These documents are as follows:
 Client’s Corporate Papers (SEC Reg. Cert., Articles &
By-Laws)
 Master Lease Agreement/Loan Agreement
 Lease Schedule/Promissory Note
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 Credit Facility Proposal (CFP)

 Notice of Approval
 LBP Lease’s Board/Excom Resolution
 Client’s Board Resolution/Secretary’s Certificate
 Memo Recommendation & Other Memo Approvals
 Certificate of Full Payment
 Deed of Sale/Deed of Transfer
 Cancellation of Mortgage
4.5. For the Credit Folders, data should be subdivided under Legal
Documents, Recommendation/Approval, CIBI, Corporate Papers,
and other headings as required. Only documents absolutely
crucial to the credit shall be filed in the folder. All operational and
business matters shall be filed in a separate working paper.
4.6. Culling shall be done at least once a year. The Account Officer
and the Credit Officer shall affix his initial and date on the right
side of the cover flap to indicate that this has been done.
5. Contents of the Credit Folders
5.1. AMG Client’s Master Folders
5.1.1. AMG Client’s Master Folder 1
Division Contents
A. Recommendations and Credit Facility Proposal (CFP)
Approvals Special Transaction Offering
Tickets (STOT)
Application Cover Sheet (ACS)
LBP Lease ExCom / Board
Resolutions
Conformed Notice of Approval
Other Memo Recommendations
B. Call Reports and Call Reports
Correspondences Incident Report
Other Correspondence
C. Credit Checking and Credit / Bank / Trade Checking
Appraisal Reports Safe-T-Net Report (checking of
multi-financed equipment)
Court Case Verifications
Clearances / Affidavits of Denial
Price Validation
Appraisal Report on Collaterals
D. Legal Documents Master Lease Agreement
Term Loan Agreement
Short Term Credit Line
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Division Contents
Agreement
Receivable Financing
Agreement
Receivable Discounting
Agreement
Memorandum of Agreement
Client’s Board Resolution /
Secretary’s Certificate
E. Collateral Documents Surety Agreement – SALN / ITR
Real Estate Mortgage (REM)
Transfer Certificate of Title
(TCT)
Condominium Certificate of Title
(CCT)
Tax Declaration
Real Estate Tax Receipt (RETR)
Chattel Mortgage (CM)
LTO Certificate of Registration
(CR) & Official Receipt (OR)
Money Placement with
Landbank
F. Corporate Papers SEC/DTI/CDA Registration
Certificate
Articles of Incorporation /
Cooperation
By-Laws
Company Profile / Basic
Business Information (BBI)
General Information Sheet
List of Stockholders & Officers
News clippings about the client
/ industry
5.1.2. AMG Client’s Master Folder 2

Division Contents
A. Business Permits and Mayor’s Business Permit
Licenses Other Permits & Licenses
B. Financial Statements Audited Financial Statements
Notes to Financials
Cash flow Statement
Projections
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Division Contents
Income Tax Returns (ITR)
5.2. AMG’s Facility Folders

Facility Contents
Leases Approved Availment Memo
Client’s Letter of Intent
Lease Availment Checklist
Payment Order
Implementation Memo
Master Lease Agreement
Lease Schedule
Disclosure Statement
Amortization Schedule
Deed of Sale
Guarantee Statement
Certificate of Acceptance
Insurance Quotation, Payment
& Coverage
Inspection Report
Price Validation (brand new
equipment)
Appraisal Report
(used/reconditioned equipment)
Acknowledgment Receipt of
Postdated Checks
Repricing Notice
Working Capital Financing Approved Availment Memo
STCL Availment Checklist
Payment Order
Implementation Memo
Short Term Credit Line
Agreement
Promissory Note
Payment Schedule
Financed Purchase Orders /
Sales Invoices / Contracts
Price / Purchase Order
Validation
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Facility Contents
& Coverage (if applicable)
Postdated Checks
Repricing Notice
Fixed Asset Financing Approved Availment Memo
Term Loan Availment Checklist
Payment Order
Implementation Memo
Loan Agreement
Promissory Note
Amortization Schedule
& Coverage
Inspection Report
equipment)
Appraisal Report
(used/reconditioned equipment)
Postdated Checks
Repricing Notice
5.3. Security File Folders

Division Contents
Legal Documents Master Lease Agreement/Loan
Agreement
Surety Agreement (JSS)
Statement of Assets and Net
Worth
Receivable Discounting
Agreement
Receivable Financing
Agreement
Floor Stock Financing
Agreement
Memorandum of Agreement
Real Estate Mortgage

Transfer Certificate of title
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Division Contents
Tax Declaration
Real Estate Tax Receipt
Chattel Mortgage
(marked “Encumbered”
Recommendation/Approval Memo Recommendation
Credit Facility Proposal
Notice of Approval (duly
confirmed by Lessee/Borrower)
LBP Lease Board/Excom
Resolution
Client’s Approval Secretary’s Certificate
Board Resolution
Specimen Signature Cards
Corporate Papers SEC/CDA/DTI Certificate of
Registration
Articles of Incorporation
By-Laws
Other Permits and Licenses
List of Officers & Stockholders
(certified by the Corporate
Secretary)
Financial Reports Income Tax Returns
Audited Financial Statements
(for initial availment and at the
time of restructuring only)
5.4. Availment Folders

Division Contents
Asset Documents Sales Invoice/Deed of Sale
Delivery Receipt
Warranty Certificate
Affidavit of Ownership
Guaranty Statement
Bill of Materials (for building
construction)
Lot Plan
Location Plan/Vicinity Map
Transfer Certificate of Title
(TCT)
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Division Contents
Tax Declaration
Real Estate Tax Receipt
Certificate of Occupancy
LTO CR & OR marked
“Encumbered”
Appraisal Report on Collaterals
(for initial availment only)
Availment Documents Approved Availment Memo
Confirmation/Availment
Request
OR for Security Deposit
Purchase Order
& Coverage
equipment)
Proforma Invoice
Other Permit and Licenses, if
applicable
Appraisal Report (for initial
availment only)
Inspection Report (for initial
availment only)
Certificate of Acceptance
5.5. Care should be taken that all unfavorable information is
permanently filed in the credit folder under its
corresponding/appropriate section.
6. Credit Disposition After the Retention Period
6.1. The Account Officer and Credit Officer shall be responsible in
forwarding for storage or safekeeping of all culled materials, and
the disposition of same after the retention period has elapsed.
6.2. Culled materials shall be retained in the respective storage rooms
of the Account Management Group and Account Servicing Group
until these are ready for disposal.
E. COLLECTION SYSTEM
1. All outstanding leases/loans must be monitored closely to ensure prompt
payment at maturity of the amortization and any other charges or
expenses associated with the transaction.
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2. The Account Officer should handle collection and regularization of

potential problematic accounts with target dates.
3. Collection/Demand Letters
3.1. For credit lines with principal payment at maturity and/or
amortized facilities with balloon payments, one (1) month before
maturity of lease/loan amortization, the Account Officer should
send a Statement of Account requesting the borrower to pay its
maturing obligation. To ensure prompt payment, a follow-up call
shall be made to ensure collection. Refer to Attachment VI.1 for
samples of Reminder and Follow-up letters.
3.2. Follow-up collection letters should inform, motivate, and command
the borrower to pay. However, tact and politeness, the
watchwords in correspondence writing, must always be present.
3.3. When an account is not paid on due date, the Account Officer
should send collection letters, via registered mail, prior to referral
to Legal Officer in accordance with the following schedule:
3.3.1. First collection letter shall be sent by the officer/employee
handling the account, as soon as the account is in arrears,
i.e., the lessee/obligor defaults on his amortization or a
portion thereof.
3.3.2. If no payment is received within 15 days from the time
the first letter was mailed, second collection letter of more
persuasive tenor shall be mailed by the officer/employee
handling the account.
3.3.3. If 15 days after the release of the second collection letter
has elapsed and still no payment has been received, a
third collection letter, with a more persuasive tenor shall
be sent unless negotiations for settlement is already in
process with the client.
3.3.4. In case of lessees/borrower’s failure to pay within 15 days
from the release of the third letter, a strongly worded
letter should be sent with warning that the case will be
turned over for legal action. Refer to Attachment VI.2 for
samples of collection letters.
3.3.5. The referral to Legal Unit shall show the brief history of
the account, latest statement of account, lease/loan
agreement, collateral documents, and other related
lease/loan documents such as PN, REM, CM, etc.
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3.3.6. Appropriate legal action shall be pursued against the

lessee/borrower if no payment is received within 15 days
from the time the final demand letter is mailed. Refer to
Attachment VI.6 for sample of demand letter.
3.4. In addition to letters, collection may be made via telephone. This
requires the following:
3.4.1. Good working knowledge of credit
3.4.2. An organized call itinerary
3.4.3. Adequate logistical material such as single line phone,
pencils, writing pad, etc.
3.4.4. The ability to control and guide the conversation along the
lines you want.
3.4.5. An understanding of people
3.5. For past due accounts, the Account Officer shall prepare a Plan of
Action Sheet (Refer to Attachment VI.4) to monitor the activities
undertaken on the account.
F. APPLICATION OF PAYMENT
1. The application of payment shall be in the following order:
1.1. Advances (insurance, etc);
1.2. Penalty;
1.3. Interest on loan;
1.4. Capitalized interest and other charges; and
1.5. Loan Principal
2. The above order of payment should be stipulated in the lease/loan
agreement and shall be applied first on obligation which is onerous to the
borrower/client.
3. For long past due accounts whose collection/repayment is doubtful and/or
legal cases has been filed payments shall be applied to the principal
portion of the obligation upon recommendation of the Account Officer and
the Legal Servicing Unit. No income shall be recognized from the
transaction until the principal exposure is recovered.
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G. PENALTY
1. Penalty Rates
The following penalty rates shall be applied:
Facility Penalty Rates
Leases Three percent (3%) per month to start on the day
after the due date of the lease amortization up to
the date of settlement.
All other credit Two percent (2%) per month to start on the day
facilities after the due date of the loan amortization or lump
sum payment up to the date of settlement.
2. Computation of Penalties
Accounts shall be charge with penalties in accordance with the prescribed
penalty rates. Penalty charges shall be computed as follows:
2.1. For amortized facilities (leases, term loans, term facilities with
interest payments etc.), the penalty shall be based on the unpaid
amortization due;
2.2. For credit line facilities, penalty charges shall be computed based
on the unpaid principal and interest on the maturity date of the
particular availment. Should the particular availment require
periodic interest payments before maturity date, penalty charges
shall be computed on any unpaid interest payment when due.
2.3. For accounts declared as “due and demandable” by acceleration,
penalty charges shall be based on the total outstanding principal
reckoned from the day immediately after the notice/demand letter
(declaring the account “due and demandable”) is served to the
borrower up to the date of settlement or the date a work out
arrangement (restructuring, payment arrangement, etc.) has been
approved. Thus, for account that are declared “due and
demandable” by way of acceleration, the total penalty charges
shall be the sum of penalties (based on arrearages) incurred prior
to the receipt of the demand letter, and the penalty charges
(based on outstanding principal) incurred from the date
immediately after the notice/demand letter is served up to the
settlement date or the date a work out arrangement
(restructuring, payment arrangement, etc.) has been approved.
3. Waiver of Penalties
3.1. Full or partial, absolute/conditional waiver/condonation of
penalties shall be allowed under meritorious cases and subject to
the approval of the Approving Authorities.
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4. Approving Authorities
4.1. Approval of full or partial waiver of penalties, whether absolute or
conditional shall be subject to the following approving authorities
unless otherwise provided:
Amount of Penalty Charges Approving Authority
Up to P25,000.00 President
Over P25,000.00 up to P50,000.00 Credit Committee
Over P50,000.00 up to P200,000.00 Executive Committee
Over 200,000.00 Board of Directors
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VII. PROBLEM ACCOUNTS AND REMEDIAL MANAGEMENT

A. PROBLEM RECOGNITION
1. GENERAL GUIDELINES
Each problem account may have many different variables which would
demand individualized treatment. Some helpful guidelines are presented
below for handling problem accounts;
1.1. Account Officers should be thoroughly familiar with the account by
studying the credit folders.
1.2. Financial analysis using the client’s latest financial statement
should be done with special emphasis on the liquidity and solvency
positions.
1.3. Ascertain if credit and security documents are complete and in
order.
1.4. Discuss problem account with key people and officers of the
borrower.
1.5. Regular project visits shall be conducted by the Account Officer
and shall be supported by the standard Call Report (CR). Visits
shall be conducted more on accounts that have shown inherent
weaknesses or signs of deterioration until operations normalize.
Frequency of visitation shall depend on the level of risks and the
course of action to be undertaken. These visits shall be conducted
to:
1.5.1. Ensure that the terms and conditions are complied with.
1.5.2. Determine if there is a need for project re-designs to
ensure viability of the project
1.5.3. Determine condition of the leased assets.
1.5.4. Monitor progress of project implementation.
1.5.5. Detect early warning signals/potential problems.
1.5.6. Address pressing/immediate problems encountered by the
project.
1.5.7. Identify courses of action for management evaluation
1.6. Review the Corporation’s security position and determine if it can
be improved. Compare collateral position with other creditors.
Conduct ocular inspection of existing collaterals and also conduct
credit investigation/property checking for the debtor and sureties,
if any, to ascertain free assets. Attempt to identify liquid assets
for possible offsetting.
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1.7. Account Officers should study LBP Lease position vis-à-vis other
creditors and decide whether LBP Lease should proceed alone or
together with other creditors.
1.8. If an account is referred for legal action, collection activities shall
be continuously undertaken.
1.9. Explore different courses of action with objective of maximizing
recovery and minimizing the loss.
1.10. Account Officers should timely recognize and act on vital
documentary deficiencies to avoid potential losses to LBP Lease
due to technicalities.
1.11. The AMG should conduct an annual portfolio review of all existing
credit accounts to identify potential problems and institute
corrective measures.
2. Credit Lapses
Generally, lending problems may be caused by lapses in loan packaging
and/or customer and related factors. The Account Officers are advised to
be always conscious of them. The specific causes of these factors may be
as follows:
2.1. Loan Packaging
2.1.1. Neglect of basic criteria and standards
2.1.2. Excessive emphasis on project earnings and setting aside
the capability of client to run the project.
2.1.3. Unclear/unspecific loan purpose thereby allowing
disbursements not related to the project.
2.1.4. Source of repayment is not tangible and quantifiable
2.1.5. Weak second way out
2.1.6. Inappropriate amortization schedule
2.1.7. Giving in to competitive pressures from other financial
institutions resulting to soft credit terms/conditions and
sacrificing standards.
2.2. Customer-Related Factors
2.2.1. Dominance by one or few officers of business/project
operations.
2.2.2. Dependence on one product line resulting to inflexibility to
changes in the market.
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2.2.3. Inability of management to cope with changes in the

industry
2.2.4. Short-term borrowings used for the acquisition of fixed
assets and/or non-earning projects.
2.2.5. Inappropriate timing of projects and inadequate financial
planning
2.2.6. Lack of professionalism of officers and management
2.3. LBP Lease-Related Factors
2.3.1. Reactive Account Officer
2.3.2. Failure to detect early warning signals
2.3.3. Inadequate loan agreement provisions and/or other terms
and condition
2.3.4. Unrealistic high targets on loan releases resulting to
deviation from credit standards
2.3.5. Neglect of basic credit criteria
2.3.6. Lapses in loan implementation/non-compliance to
approved terms and conditions
3. Symptoms of Weakened Accounts
Account Officers shall always take note of the symptoms of weakened
accounts since their early recognition is critical to the formulation of
appropriate courses of action. The following are the early warning signals
of weakened accounts:
3.1. Violation of Loan Agreement Provisions
3.1.1. Diversion of funds/loan proceeds
3.1.2. Lapses in installment payments
3.1.3. Waiver or violation of safeguards against defaults
3.1.4. Pole-vaulting
3.1.5. Unremitted collection
3.2. Internal Problems
3.2.1. Failure to submit financial statements on time
3.2.2. Management shake-up
3.2.3. Emergency/unscheduled BOD reorganization/meetings
3.2.4. Willful default among members
3.2.5. Disappearance of officers/assets
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3.2.6. Non-remittance/rolling-over of collections (for co-ops)

3.2.7. Marked difference between projections and actual
operations
3.2.8. Returned checks to suppliers and creditors
3.2.9. Failure to submit financial statements on time
3.2.10. Loss of cooperation
3.2.11. Labor problem
3.3. Financial
3.3.1. Low sales turnover
3.3.2. Diminishing margin of profitability
3.3.3. Decline in inventory turn-over
3.3.4. Build-up of receivables vs. sales/total assets
3.3.5. Major sales of assets/declining assets
3.3.6. Increase in liabilities
3.3.7. Decline in net worth
3.3.8. Competitive operations
3.3.9. Deteriorating cash position
3.3.10. Increasing collection period
3.3.11. Noticeable rise in inventory costs as a percentage of total
assets without justifiable reasons
3.3.12. Marked changes in trading of product mix
3.3.13. Heavy lines or encumbrance of assets
3.3.14. Marked decline in current assets as a percentage of total
assets
3.3.15. Devaluation or re-appraisal of current assets without
justifiable reasons
3.3.16. Disproportionate increase in current liabilities
3.3.17. Increasing bad-debts
3.3.18. Rising sales, falling profits
3.3.19. Rising operating expenses as a percentage of
sales/revenue
3.4. Non-financial Indicators
3.4.1. Unreasonable request for substantial increase in credit
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3.4.2. Investment in non-related ventures of business

3.4.3. Fast turn-over of employees without justifiable reasons
3.4.4. Problems or squabble among and between stockholders or
owners
3.4.5. Flurry of insolvencies or bankruptcies in the field of
business or area of operation of the debtor or customer
3.4.6. Habitual issuances of bouncing checks
3.4.7. Buying at big volumes and selling at cost or at a loss
3.4.8. Substantial or repeated rumors about the unsatisfactory
credit habits of the debtor
3.4.9. Refusal to pay confirmed arrearages due to alleged
dissatisfaction
3.4.10. Legal trickery of subterfuge such as: fictitious sale or lien
on assets; unjustified incorporation or change of business
status; and absconding with intent to defraud creditors
3.4.11. Sudden unexplainable decrease in manpower
3.4.12. Poor appearance of the office or place of business
3.4.13. Poor maintenance of plant and equipment
3.4.14. Dishonesty of officers or employees of the debtor
3.4.15. New laws adversely affecting a debtor’s business
3.4.16. Insufficiency or lack of insurance coverage
3.4.17. Inability to meet commitments on schedule
3.4.18. Evidence of legal action
3.4.19. Deteriorating relationships with trade suppliers
3.4.20. Loss of one or more financially sound customers
3.4.21. Too much dependence on single or very few buyers
3.4.22. Poor financial housekeeping practices
4. Account Classification
4.1. Procedures on Account (Loan) Classification
4.1.1. The Account Officer shall promptly classify loans in order
to recognize credit deterioration and immediately
implement remedial measures.
4.1.2. The following are the classification of accounts:
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a. Unclassified Accounts
b. Classified Accounts, consisting of the following:
 Miscellaneous exceptions-loans and
advances (ME-LA)
 Loans especially mentioned (LEM)
 Substandard
 Doubtful
 Loss
4.1.3. The account classification shall be properly disclosed in
the credit proposal.
Please refer to Annex VII.1 for the Guidelines in Account
Classification and Annex VII.2 BSP Circular No. 247 Series
of 2000 for the characteristics and the account
classification indicated above.
4.2. Approval Procedure for Classification/
Reclassification/Declassification of Accounts
4.2.1. Whenever the situation warrants, the Account Officer shall
initiate the classification, reclassification and/or
declassification of accounts using the Account
Classification Memorandum.
4.2.2. The Head of AMG shall review and recommend approval
of the account classification and submit the same for
approval of the President.
4.3. Annual Qualitative Review
4.3.1. Account Management Group shall conduct annual
qualitative review of accounts outstanding as of June 30.
4.4. Setting-up Valuation Reserves
4.4.1. Valuation Reserves shall be set-up as follows:
Valuation
Classification of Account
Reserves
Loans Specially Mentioned (LEM) 5%
Substandard
 Secured 6% to 25%
 Unsecured 25%
Doubtful 50%
Loss 100%
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4.4.2. Amount of Valuation Reserves shall be accrued monthly

and booked as Provision for Losses. The President shall
approve, through the recommendation of the AMG and
ASG Head shall approve the final adjustment of valuation
reserves at year-end based on qualitative review.
5. Loan Impairment Process
5.1. Conduct of annual assessment of loan impairment as required by
the PFRS shall be done every September 30.
5.2. Assessment of impairment of accounts may be done individually or
collectively.
5.3. Reports from Account Officers on the assessment shall be
submitted to ASG Head for review on or before October 30. After
the review the assessment is endorsed to the President for
approval.
Please refer to Annex VII.3 for Specific Guidelines on Loan
Impairment.
6. Past Due Loans
6.1. As a general rule, past due accounts refer to all accounts in LBP
Lease’s portfolio which are not paid on due dates or where
arrearages have reached 20% of outstanding balance.
6.2. The following are considered as past due accounts:
6.2.1. Loans or receivables payable on demand - if not paid on
the date indicated on the demand letter; or if not paid
within six (6) months from the date of grant, whichever
comes earlier.
6.2.2. Bills discounted and time loans whether or not
representing availments against credit line, if not paid on
the respective maturity dates of the PNs
6.2.3. Total outstanding balance of loans or receivables wherein
installments in arrears thereof have reached the
prescribed minimum arrearages in accordance with the
following schedule:
Minimum Number of
Mode of Payment
Arrears in Installment
Monthly 3
Quarterly 1
Semestrally 1
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Minimum Number of
Mode of Payment
Arrears in Installment
Annually 1
6.2.4. However, when the total amount of arrearages reaches

twenty percent (20%) of the total outstanding balance of
the loan/receivable shall be considered as past due,
regardless of the number of installment in arrears.
6.2.5. For modes of payment other than those listed above (e.g.,
daily, weekly, or semi-annually), the entire outstanding
balance of the loan/receivable shall be considered past
due when the total amount of arrearages reaches ten
percent (10%) of the total loan receivable balance.
6.2.6. For quarterly, semi-annual and annual installments, the
account shall be considered past due if one amortization is
not paid in full on due date.
6.2.7. For monthly installments, the account shall be considered
past due if the number of arrears is three installments of if
the total amount of arrearages reached 20% of the total
outstanding balance, whichever comes first.
6.2.8. Past Due accounts recommended for write-off should be
properly evaluated and supported by negative status
reports CI/BI, Asset Verification, AO call report among
others
7. Non-Performing Loans
7.1. As a general rule, Non-Performing Loan (NPL) shall refer to
unamortized loan accounts whose principal and/or interest is
unpaid for thirty (30) days or more after due date. For amortized
term facilities, after they have become past due in accordance
with existing rules and regulations. This apply to loans payable in
lump sum and loans payable in quarterly, semi-annual or annual
installments, in which case, the total outstanding balance thereof
shall be considered as non-performing; provided however, that
when the total amount of arrearages reaches twenty percent
(20%) of the total outstanding balance of the loan/receivable, the
total outstanding balance of loan/receivable shall be considered
past due, regardless of the number of installment in arrears.
7.2. In the case of loans payable in monthly installments, the total
outstanding balance thereof shall be considered non-performing
when three (3) or more installments are in arrears or when the
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total amount of arrearages reaches 20% of the total outstanding

balance of the loan/receivable, whichever comes earlier.
7.3. Generally, a loan which is restructured is considered non-
performing except for those accounts which will be restructured
for the first time but:
7.3.1. Classified as current at the time of restructuring
7.3.2. Classified as current with proposed capitalized interest
and fully secured with Real Estate Mortgage having a loan
value of at least 60% of the appraised value, provided
that the accruing penalties are fully paid at the time of
restructuring. Otherwise, it shall be considered non-
performing.
7.4. A restructured loan which has been previously restructured shall
be considered NPL and classified, at least, Substandard.
7.5. A restructured loan which has been restored to a performing loan
status shall be immediately considered non-performing in case of
default of any principal or interest payment.
7.6. Restoration of NPL to a performing loan shall be as follows:
7.6.1. Non-restructured accounts considered non-performing
shall be restored as performing loan upon full updating or
payment of arrearages including principal, interest and
other charges.
7.6.2. The restoration to a performing loan of a restructured
loan shall only be done after a satisfactory track record of
payments of the required amortizations of principal and/or
interest has been established.
For this purpose, a satisfactory track record of payments
of principal and/or interest shall mean three (3)
consecutive payments of the required amortizations of
principal and/or interest have been made. However, in
the case of a restructured loan not fully secured by real
estate security or other first class collaterals and the
insured improvement thereon, six (6) consecutive
amortizations of principals and/or interest must have been
made.
7.6.3. The restoration of a loan restructured more than once
shall only be allowed after a satisfactory track record of at
least six (6) consecutive payments of the required
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amortization of principal and/or interest shall have been

established.
B. REMEDIAL MANAGEMENT
1. GENERAL GUIDELINES
1.1. Problem account management shall be managed based on the
following objectives:
1.1.1. Maintenance of a high quality loan portfolio through the
regularization of problematic accounts; correction of
credit/documentation deficiencies; and strengthening
weak credit by upgrading the collateral support;
1.1.2. Introduction of collection efforts with ultimate goal of
collecting interest and full recovery of loan principal;
1.1.3. Provision of optimum protection of LBP Lease’s interest by
instituting timely and appropriate legal or extra-legal
action;
1.1.4. Minimization of write-offs
1.2. The Account Officer shall be primarily responsible for managing
problem accounts, including the following:
1.2.1. Overall account supervision and monitoring;
1.2.2. Early detection of potential problem accounts;
1.2.3. Submission of a comprehensive and time-bounded
remedial action plan; and
1.2.4. Implementation of comprehensive and time-bounded
action plan and strategies to mitigate potential problems.
1.3. The Account Management Group should maintain a system to
periodically assess, monitor, supervise and follow-up account
management activities, including the conduct of regular
review/discussion.
2. Remedial Measures
2.1. Remedial Measures refer to strategies and activities that comprise
an overall rehabilitation plan to help the client meet its maturing
obligations and improve LBP Lease’s chances of recovery.
2.2. The Account Officer shall institute remedial measures when
payment, covenant, representation, insolvency, seizure, cross,
judgment and other events of defaults occur.
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2.3. Events of Default

2.3.1. Payment Default – If the borrower fails to pay any
principal, interests, advances, service chares or any
amount part of the foregoing when due and demandable
under the terms and conditions in the loan agreement and
of the covering promissory notes and/or evidences of
indebtedness and contracts, documents, etc.
2.3.2. Covenant Default – If the borrower shall fail in the due
performance or observance of any of the terms and
conditions, covenants or provisions contained in the loan
agreement and other related documents, contracts and
instruments, including amendments and addenda and if
such failure is capable of satisfactory remedy, the
borrower shall have failed to institute the necessary
remedial measure within the stipulated period after the
borrower shall have been notified in writing of such
default by the lender.
2.3.3. Representation default – If (1) there is any
misrepresentation of facts or error with respect to, or
violations of any of representations and warranties set
forth in the loan agreement and the related contracts,
documents and instruments executed in connection with
the loan, and (2) proceeds of the loan has been
employed, without written approval of the lender, for this
purposes other than those agreed upon with the lender
provided for in the loan agreement.
2.3.4. Insolvency default – If the borrower (1) become insolvent,
bankrupt, or if the borrower shall make general
assignment of its properties and assets for the benefit of
creditors or shall have filed an insolvency petition or shall
be put into forced or voluntary liquidation or insolvency,
(2) apply with any court for the appointment of a receiver,
administrator or liquidator for the borrower, and (3)
unable or admit in writing its inability to pay its
indebtedness.
2.3.5. Cross Default – The borrower fails to pay any amount due
under any other agreement (whether or not written) or
document evidencing securing, guaranteeing or otherwise
relating to any other indebtedness of the borrower or
there is default by the borrower under such agreement or
document for borrowed money and other similar forms of
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financial obligations, the effect of which is to accelerate or

to permit acceleration of the maturity of such
indebtedness.
2.3.6. Seizure default – If any governmental authority shall have
taken any action to condemn, seize or appropriate the
borrower or any substantial portion of the borrower’s
properties or assets or business (either with or without
payment of compensation) which adversely affects the
borrower’s ability to pay its indebtedness.
2.3.7. Judgment Default – Any judgment for money/damages or
fine is entered against the borrower and is not paid,
discharged or fully bonded within certain days after the
date when payment of such judgment is due under
applicable laws.
2.4. In case of default, the Account Officer shall undertake the
following:
2.4.1. Call the attention of the defaulting client through a
document notice;
2.4.2. Work-out arrangements for the purpose of liquidating past
due accounts;
2.4.3. Institute remedial measures to help the client meet its
maturing obligations and improve LBP Lease’s position to
collect the loan;
2.4.4. Initiate the filing of legal case against the client, in cases
when the client ignores LBP Lease’s summons; and
2.4.5. Record and report status of all action/remedial measures
taken on past due loans to management.
2.5. Basic Remedial Options
2.5.1. The main responsibility is to restructure and/or otherwise
collect the problem loan in cash and ideally in full over a
reasonable period of time. Workout is based on mutual
willingness of the borrower to pay and of the creditor to
extend repayment terms. The account has fundamental
problems but can be corrected. Areas to look into a
workout situation include the collaterals, documents,
project viability and other creditors.
The success of the workout situation depends on the
negotiation skills of the AO who needs to convince the
borrower to see things his way and let borrower to see
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things his way and let borrower agree to the desired

courses of action. The basic premise is to protect the
interest of the Corporation. Some basic rules follow:
 Know the facts, understand the economic realities
and decide on what you want. Then move fast,
preferably before other creditors do.
 Aim for the biggest recovery within the shortest
time possible. Taking losses on problem loans is
a fact of life.
 Maximize present value recovery; cash is always
preferred to asset settlement;
 When dealing with other creditors, make sure that
no one improves on his present position ahead of
others;
 When moving alone, try to move ahead of other
creditors;
 Be flexible in dealing with other creditors. You
may also need their help in the future when roles
are reversed.
2.5.2. When Work-out may be pursued
 Borrower cooperates, willing to pay and accepts
possible financial sacrifice.
 Reason for financial difficulty is legitimate and
curable
 Borrower submits a business and financial
rehabilitation plan that proves feasible after
validation and shows adequate debt service,
profitable projected operations, strong demand of
product, capable management and adequate
financial controls
 Profitable past track record before financial
difficulties
 Adequately secured by good collaterals or
inadequately secured leaving no choice position
 No fraud is involved
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2.5.3. Major Work Out Strategies

 Restructuring
DESCRIPTION GENERAL GUIDELINES
Generally, any change  The following are circumstances that
in the principal terms warrant restructuring:
and conditions of the  Admission by the borrower that
loan in accordance with he can no longer comply with the
a restructuring present amortization schedule
agreement setting forth due to business reverses;
a new plan of payment  Occurrence of unfavorable
on a periodic basis events that are beyond the
control of the borrower and
which will greatly impair the cash
flow or liquidity of the project
like natural calamities, fire, labor
and management problems
 As a general rule, loan restructuring
shall be done only if the borrower
still has the capacity to pay his
obligations and needs a set of new
repayment terms. The AMG must
validate the sources of repayment,
the results of which must be
included in the restructuring
proposal.
 Specifically, loan restructuring
should be considered only if:
 Loan restructuring shall improve
the borrower’s ability to pay his
obligations;
 Loan restructuring shall not
involve an increase in exposure,
aside from capitalized charges, if
any;
 Loan value of the collateral, as
general rule, shall be enough to
cover the loan to be
restructured, except for agrarian
loan which shall not be strictly
governed by this policy;
 Financial interest/corporate
image of LBP Lease shall not be
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prejudiced.
 Capitalized charges as a matter of
policy shall bear interest (except for
cooperative accounts).
 The real estate security of loans over
P5.0M (based on principal balance)
shall require appraisal of an
independent appraisal company
acceptable to BSP and shall be re-
appraised every year thereafter;
 Approval of restructuring proposals
shall be based on CASA and should
be fully documented;
 In restructuring, the following shall
be required of the borrower;
 Upfront payment equal to
accrued interest, penalty and
account receivable as show of
sincerity and commitment of the
borrower; for unsecured or
partially secured loan, payment
shall be equivalent to 5% of
outstanding loan obligation or to
the extent of the unsecured
portion of the outstanding loan,
whichever is lower;
 Written repayment plan to
ensure capability to meet the
loan amortizations under a
repayment term;
 Post-dated checks to cover the
amortizations on the principal for
the 1st year of the restructured
loan.
 Refinancing
This mode of  The following shall be considered in
settlement is thru refinancing:
extension of a new loan  Company is viable and market
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or line with major part continues to exist.
of proceeds to be  Cash flows still adequate under a
applied to outstanding restructured mode.
past due loan and any  Collaterals are adequate
remaining balance to  Emergency operating/financial
be utilized for the controls are instituted
borrower’s project.  Use of new loan is
justified/controlled and
monitored.
 Borrower enjoys suppliers/other
creditors/government support.
 Compromise Settlement
Covers lump-sum  Payment should not exceed six (6)
payment either through months, otherwise it becomes
cash payment or dacion restructuring and should include full
en pago and generally amount of obligation bearing interest
includes condonation of on the principal balance.
unbooked interest  Proposal shall be subject to approval
and/or penalty charges. per CASA.
 In packaging the compromise
settlement, the following shall be
emphasized:
 Inclusion of yield analysis for
cash settlement to show that a
desirable yield on fund exposure
is attained;
 Settlement shall bring immediate
reduction of past due level and
cash receipt (for cash payment);
and
 Offer of dacion en pago shall be
evaluated vis-à-vis the latest
appraisal of the property which
shall not be more than three (3)
months old on the date of the
dacion approval;
 The settlement shall more than
cover the total booked obligation.
Other alternative options should be
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identified, analyzed and presented.
 Off-Setting
Involves the provision Goods and services shall pass LBP
by the borrower of Lease’s bidding process for the
services and/or goods arrangement to take effect.
as loan settlement. The
goods/services shall be
used to liquidate the
borrower’s obligation
with LBP Lease
 Strengthen Collateral/Credit Position

Involves the securing Generally this is done at the time of
of additional collateral restructuring of a past due account
to secure the loan when it is discovered that the collateral
and/or continuing cover is deficient.
Guaranty and/or JSS by
a more viable and/or
acceptable party as
further security of the
loan.
 Substitution or Submission of Additional

Collateral
Borrower will replace  This remedy is resorted to on or
existing collaterals, or before the loan becomes past due.
mortgaged or pledge (If the loan is already past due, it
additional collaterals in usually forms part of the
case the appraised restructuring arrangement)
value of the existing
collateral/s has/have
diminished.
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 Assumption of Mortgage
Involves the  The third party should pass the risk
assumption of asset criteria and other credit
mortgage by a third standards of LBP Lease.
party, e.g., a private  Approval of this transaction is based
individual, partnership, on thorough evaluation of the credit
company cooperative, worthiness of the party assuming
etc. wherein he the obligation.
assumes the obligation  Reasonable amount of down
of the borrower. payment and/or additional collateral
shall be required. The Appraisal
Report shall be updated to
determine LBP Lease’s collateral
position prior to the approval of the
transaction.
 Preferably, all amortizations due
shall be covered by post-dated
checks to be issued upon
implementation.
 The transaction shall be covered by:
 Deed of Assumption of
Obligation (signed by obligor
and LBP Lease as the obligee);
and
 Deed of Sale with Assumption of
Mortgage (signed by the original
borrower as vendor and the
obligor as the vendee with
conformity of LLBP Lease.
 These documents shall be
registered with the Registry of
Deeds prior to implementation.
 Proposals shall be made via CFP.
3. Liquidation Strategies
3.1. Liquidation options may be pursued if workout negotiations fail.
Sometimes a combination of liquidation and work-out may be
pursued to come-up with a realistic repayment plan. If existing
collateral is insufficient, other assets should be identified as source
of payment later.
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3.2. When Liquidation May Be Pursued

3.2.1. When fraud is involved
3.2.2. When all efforts to collect/restructure have failed
3.2.3. No other sources of payment
3.2.4. Borrower refuses to cooperate/unwilling to pay
3.2.5. Loan is secured with adequate collaterals
3.3. Major Liquidation Strategies
3.3.1. Foreclosure
Procedure by which mortgaged  Outstanding balance of past-
property is sold upon default of a due loans or loans that have
mortgagor in satisfaction of become due and demandable
mortgage debt. shall be transferred to “items in
litigation” upon filing of
collection/foreclosure cases in
court or of the extra-judicial
petition for foreclosure.
 The following are included in
the computation of outstanding
balance to be filed for
collection/foreclosure cases:
 Penalty and interest on
accounts receivable;
 Accounts receivable balance
;
 Penalty on loans;
 Accrued interest and
interest charges on loan;
 Principal loan; and
 All related fees.
 Expenses incurred in connection
with the litigation proceedings,
including advances for
insurance of foreclosed
properties, shall be booked
under Litigation/Assets Acquired
Expenses.
 The AMG shall recommend the
foreclosure of mortgage/pledge
and shall be approved in
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accordance with the CASA. The
mode of foreclosure shall be
evaluated by the AMG in
consultation with the
President/GM.
 AMG shall continue to exercise
account management function
over accounts referred for
foreclosure/legal action.
Pledged collaterals shall be the last
to be foreclosed since foreclosure
of the same bars any claim for
deficiency.
3.3.2. Dacion en Pago

Sale of property to the corporation  LBP Lease should consider
in full/partial payment of obligation. marketability of the property as
well as its proper valuation
 Object of the dacion could be
the mortgage collateral or
another property.
 Dacion is considered as “sale”
and therefore subject to capital
gains tax, documentary stamp
tax and transfer tax.
 It may also involve the
assignment of other assets of
the borrower
 If the assets/assigned is/are
insufficient, the dacion en pago
instrument should expressly
stipulate that the borrower shall
pay or is still liable for the
deficiency
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3.3.3. Sale of Mortgaged Assets With or Without Assumption of

Obligation
Involves the sale of the mortgaged When the buyer cannot raise the
collateral to an interested buyer entire purchase price, The
and the proceeds applied to the Corporation can allow the
loan. purchaser to assume obligation and
pay the Corporation later. The new
obligor should have the capacity to
pay.
3.3.4. Replevin
This is a remedy by which a party The Corporation shall seek approval
seeks to recover immediate for the filing of replevin case and
possession of a personal property pay the necessary fees.
which is the subject matter of
action without waiting for the final
adjudication of the case on the
merits.
3.3.5. Voluntary/Involuntary Bankruptcy

DESCRIPTION
This happens when the borrower have more liabilities than assets and
could not pay its obligations. In the process the court will appoint a
Receiver whose function is to protect the rights of the parties during the
pendency of the case. Voluntary bankruptcy is filed by the borrower in
court while involuntary bankruptcy emanates from other parties like
creditors.
4. Litigation Strategies
4.1. This involves filing of cases in court which involves time and
money. The final decision normally takes time.
4.2. When Litigation May Be Pursued
4.2.1. Account is not secured
4.2.2. Collateral is lost or not worth running after
4.2.3. Mortgage is abandoned and collection suit is filed
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4.2.4. Availability of attachable assets (preferably in cases with

provisional remedy for attachment); and
4.2.5. Sometimes collection suit is filed in hopes of executing
later
4.3. Major Litigation Strategies
4.3.1. Collection Suits (with or without attachment)
This involves filing of collection or sum of money case in
court against the borrower/s and sureties
Steps in filing collection suits/deficiency claims:
 Complaint for Sum of Money is filed in court
 Summons with copy of complaint is served to the
defendant/s
 If no answer is filed, move to declare defendant in
default. Corporation to present its evidence ex-parte.
Thereafter, the case is submitted for decision.
 Court may refer the parties to a mediation conference
 Trial on the merits
 Decision (Subject to appeal of losing party)
4.3.2. Attachment
A provisional remedy by which the property of defendant
is taken into custody of law either at the commencement
of the action or during the progress of the same, as
security for the satisfaction of any judgment that the
plaintiff may recover.
Arises when a writ is issued by the court at the
commencement or progress of an action, commanding the
sheriff or other officers to take custody of the property,
rights, credits or effects of the defendant to satisfy the
demands of the plaintiff.
Some grounds for attachment are:
 In an action for the recovery of a specified amount of
money against a party who is about to depart from the
Philippines with intend to defraud its creditors.
 In an action against a party who has been guilty of a
fraud in contracting the debt or incurring the obligation
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 In an action against a party who has removed its

property or is about to do so, with intent to defraud
creditors.
 In an action against a party who does not reside and is
not found in the Philippines on whom summons may be
served by publication.
4.3.3. Deficiency Claims
When proceeds of the foreclosure sale (except for pledge)
are not sufficient to cover all the obligations and expenses
secured, the mortgagee may file a deficiency claim.
Before filing a deficiency claim, other assets that could be
levied later should have been identified earlier to avoid an
empty judgment. Otherwise, the Corporation will not file
a deficiency claim in the absence of leviable asset, unless
the intent is to make leverage with the borrower.
Deficiency claim will not prosper if the insolvent
mortgagor is discharged before foreclosure is terminated
or when foreclosure is effected after termination of testate
or intestate proceedings on the estate of the deceased.
4.3.4. Bouncing Checks
Checks drawn against insufficient fund/no funds.
Two sets of law governing bouncing checks:
Article 315 par. 2(d) of the Revised Penal Code, as
amended – the crime of estafa under this law is a form of
swindling by means of deceit. Under this law, if there is
no deceit, there is no estafa. To satisfy the element of
deceit, the issuance and drawing of the check must be
prior to, simultaneous with transaction between parties.
Batas Pambansa (BP) 22 – This special law was enacted
to maintain the credibility and value of checks as medium
of business. With the enactment of this special law, a
check issued in payment of pre-existing obligation is no
defense. The offense punished is the act of making and
issuing a worthless check or a check that is dishonored
upon its presentation for payment. In case of dishonor,
drawer must be given notice of dishonor and is given five
(5) days to make good the check. Action to file the case
under this special law prescribes after 2 years. Ways of
committing infraction of BP 22 follows:
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 The making, drawing or issuance of any check to apply

on account or face value, the drawer knowing at the
time of issue that he does not have sufficient funds in,
or credit with, the drawee bank for payment of such
check in full upon its presentment, which check is
subsequently dishonored for the same reasons, order
the bank to stop payment.
 The failure of any person who, having sufficient funds
in or credit with the drawee bank when it makes or
draws and issued a check, shall fail to keep sufficient
funds or to maintain a credit to cover the full amount is
presented within 90 days from the date appearing
thereon, for which reason, the check is dishonored by
the drawee bank.
4.3.5. Swindling/Estafa
This is the commitment of fraud under Article 315 of the
Revised Penal Code.
Means of fraud: With unfaithfulness or abuse of
confidence (1) by misappropriating or converting to the
prejudice of any other money, goods or any other
personal property received by the offender in trust or on
commission, or for administration, or under any other
obligation involving the duty to make delivery of, or to
return, the same xxx or denying having received such
money, goods or other property; (2) by taking undue
advantage of the signature of the offended party in
blank, and by writing any document above such signature
in blank to the prejudice of the offended party or any third
person by means of false pretenses or fraudulent acts
executed prior to or simultaneous with the commission of
the fraud by using a fictitious name, or falsely pretending
to possess power, influence. Qualifications, property,
credit, agency, business, or by means of other similar
deceit (e.g. forged signatures on credit documents; failure
to return borrowed documents; non-existent collaterals;
wrong collaterals).
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5. Other Strategies
5.1. Write-off
These are accounts whose collection recovery is remote after all
efforts have been exhausted (i.e. clean loans and company ceased
to operate or has filed for insolvency proceedings, among others).
Determination of accounts eligible for write-off is a matter of
judgment.
5.2. Suspension of Payment
Suspension of payment is the postponement, by court order, of
the payment of debts of one who, while possessing sufficient
property to cover debts, foresees the impossibility of meeting
them when they respectively fall due.
5.2.1. Who May Petition: Any debtor who foresees the
impossibility of meeting its debts when they respectively
fall due or any creditor/s holding at least 25% of the
debtor’s total liabilities, may petition the proper Regional
Trial Court to have debtor placed under rehabilitation.
5.2.2. Petitioner is required to submit a rehabilitation plan.
5.2.3. Creditor or Debtor shall file a verified opposition to or
comment in the petition.
5.2.4. Court appoints a Rehabilitation Receiver who is tasked to
study the best way to rehabilitate the debtor; it can also
recommend a termination of the proceedings and the
dissolution of the debtor if he determines that the
continuance in business of such entity is no longer
feasible.
5.3. Redemption
This is a transaction through which the mortgagor or one claiming
his rights, by means of payment or performance of condition
reacquires the title to the property subject of mortgage
foreclosure.
5.3.1. In case where the foreclosed is owned by the individuals,
redemption period is one (1) year reckoned from the date
of registration of the Certificate of Sale (COS) with the
Register of Deeds. However, if the realty foreclosed is
owned by juridical entities, the redemption period shall be
until the registration of COS or until three (3) months
from foreclosure date, whichever is earlier. For
land/agricultural land covered by patents, after the
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Corporation consolidates ownership over the foreclosed

properties upon the expiration of the above redemption
periods, the patentee/grantee still has the right to
repurchase the land within a period of five (5) years
reckoned from the time the Corporation consolidated its
ownership thereon. Foreclosed chattels are not subject to
redemption.
5.3.2. Possession of the property shall be given to the
Corporation/purchaser only after the expiry of the
redemption period. If the bank feels the need to
safeguard its interest on the acquired asset particularly
those with valuable improvements and there is a high
possibility of dissipation, the Corporation could petition the
proper court for the possession of the foreclosed property
during the redemption period, through a writ of
possession supported by a bond in an amount equivalent
to the use of the property for a period of 12 months (for
foreclosed properties owned by individuals).
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VIII. SPECIAL TRANSACTION OFFERING TICKETS

A. GENERAL GUIDELINES
1. Special Transaction Offering Tickets (STOTs) will be used for the following
transactions:
1.1. Amendments/deviations from the approved terms and conditions,
including, but only limited to the following:
1.1.1. Extension of line expiry date;
1.1.2. Changes in pricing/interest rate
1.1.3. Re-allocation/establishment of sub-limits
1.1.4. Amendments in the pre-release conditions
1.1.5. Request for increase in line for lines previously renewed
with substantial decrease in amount
1.1.6. Deferment of one or more amortization payments without
change in maturity of exposure
1.1.7. Extension of availment period (maximum of 6 months)
1.2. Partial Release/Substitution of collateral
1.3. Minor revision(s) on the terms and conditions of the existing CFP
that do not require evaluation of the borrower’s financials.
1.4. One Time Transaction
2. Special Transaction Offering Tickets (STOT) should be neatly prepared
and written legibly with all portions/sections completed. The words
“none”, “not applicable”, etc. should be used where applicable.
3. The proposed transaction shall be described in concise, explicit and clear
manner.
4. Outstanding balances must be those as of the month end immediately
preceding date of the offering as shown in the “Date” section.
5. The “Reason for Request/Justification” portion shall contain pertinent
information and explanation that will enable the approving authority to
make clear decision on the proposal.
6. Approval boxes should appear on all pages of the STOT.
7. The financial update on the account must be included and shall indicate,
among others, the key financial indicators i.e. liquidity, profitability and
solvency. The latest financial update (FS), or Certificate of Income and
Employment (for consumer loans), presented in the STOT shall not be
more than 6 months from date of proposal. However, financial update
shall not be required for minor revisions.
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8. CI and appraisal updates shall not be more than twelve (12) months and
2 years at the time of the proposal.
9. Additional conditions or instructions made by the approving authorities
must be clearly stated in the STOT.
10. All changes/amendments in the approved terms and conditions in the
STOT shall be justified.
11. In no case shall extension of line expiry, changes in pricing, re-allocation
of sub-limits, and/or collateral substitution/partial release be granted if
account is past due, except in cases where the Corporation’s position is
enhanced or when transactions proposed in the STOT are part and parcel
of a restructuring or remedial action on the account.
B. TRANSACTIONS REQUIRING STOT
1. Amendments/Deviations from approved terms and conditions, shall be
limited to the following:
1.1. Extension of Line Expiry
1.1.1. As a general rule, no line extension shall be allowed after
the expiry of the original line, except when borrower has
not submitted the documents required for the renewal of
the line; or required documents were submitted too late
to enable the Lending Unit to prepare a line renewal.
1.1.2. Every STOT for line extension, except for Financial
Institutions, shall be accompanied by a written request
from the borrower indicating his intention to renew the
line.
1.1.3. No line extension shall be allowed after the expiry of the
existing credit line.
1.1.4. In highly exceptional cases, request for extension shall
only be granted for a maximum of sixty (60) days,
provided there will be no new availment during the
extension period.
1.1.5. Approving level shall be the same as the original
approving authority.
1.1.6. Line extension shall not involve any increment in the
originally approved credit facility.
1.2. Changes in Pricing/Interest Rate
1.2.1. Interest rate or pricing provision may be amended on a
case-to-case basis depending on the following:
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a. Merits of the project;

b. Potential business that the borrower may bring in;
and
c. Extent of the trade-off in terms of collateral
business.
1.2.2. Pricing structure shall be stated in a specific manner.
1.2.3. Approval of interest rates/pricing, including changes
thereof shall be based on the CASA.
2. Release/Substitution of Collateral
2.1. The borrower shall shoulder all actual expenses in documentation
process, (e.g., cancellation and/or registration of mortgage) for
the release/substitution of collateral.
2.2. The original approving authority shall approve the transaction.
The amount shall be based on the outstanding balance for term
loans and the amount of line for short-term loans.
2.3. Partial Release of Collateral
2.3.1. May be allowed subject to the following conditions:
a. Client has no past due obligations at the time of
release of collaterals;
b. Original Collateral Cover should be maintained.
Any reduction in collateral cover from the original
approval should be clearly stated in the STOT.
c. Prior to partial release, re-appraisal of the
remaining collaterals shall be undertaken if the last
appraisal is more than one year. Government
securities and hold-out on deposit shall be
exempted from prior appraisal; and
d. Releasing a particular collateral will not affect the
value of remaining collaterals
2.3.2. Partial release shall not be allowed where the collateral is
part of the production line, facilities or sites, the
disposition of which would disrupt the normal operations
of the business.
2.4. Substitution of Collateral
2.4.1. Original Collateral Cover should be maintained. Any
reduction in collateral cover from the original approval
should be clearly stated in the STOT.
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CREDIT MANUAL
2.4.2. Real estate collateral may be substituted only with

another real estate property of superior type than existing
real estate collateral (e.g. commercial to commercial, or
residential to commercial, or residential to residential), or
equivalent against hold-out on deposit and/or government
securities.
a. Location/vicinity (i.e. urbanized & commercial
areas, good topography)
b. Ownership (no encumbrance, few
owners/claimants)
c. Marketability (Commands high value; can easily
dispose)
2.5. Substitution shall not be allowed if the collateral to be substituted
is the project site, or when the collateral is part of the production
line, facilities or sites, and the disposition of which would disrupt
the normal operations of the business.
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CREDIT MANUAL
IX. CREDIT REVIEW PROCESS

A. GENERAL GUIDELINES
1. Credit review is an integral part of a total system for managing the credit
portfolio of LBP Lease. The overriding concern is to help develop correct
credit practices and procedures to minimize credit risks.
2. The following are the primary goals of credit review:
2.1. Assess the management of credit risks.
2.2. Identify areas in the credit operation that need improvement and
recommend corrective action.
2.3. Instill awareness and adherence to LBP Lease’s credit standards
and practices.
2.4. Provide inputs for credit policy formulation.
2.5. Provide feedback to senior management on the overall credit risk
assessment.
3. The Internal Audit Unit (IAU) is responsible for undertaking periodic credit
portfolio review.
3.1. Compliance with credit standards based on BSP Rules and
Regulations, Banking Laws, LBP Lease’s credit policies, procedures
and practices, Board Resolutions and the Codified Signing and
Approving Authorities (CASA) Manual will be assessed. The
approved Risk Asset Acceptance Criteria (RAAC) shall also guide
the reviewers, and other credit related policy issuances.
4. Relative to its function, IAU shall conduct the following activities:
4.1. Conduct an annual comprehensive credit review.
4.2. Monitor the compliance to action plans to correct observed
common and major weaknesses. The activity shall be done within
a period of 3 months to 6 months from last review depending on
the gravity and level of risk findings.
4.3. Conduct spot/random checking on lease/loan transactions to
recognize and immediately correct deficiencies/lapses. The
activity shall be made from time to time to check compliance to
the pre and post release conditions of an approved lease/loan.
Samples shall be limited to accounts with outstanding balances of
Php3.00 million or more.
4.4. Conduct special reviews as the need arises or upon instructions of
senior management.
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CREDIT MANUAL
B. SCOPE OF CREDIT REVIEW

1. The credit review shall focus on the assessment of two (2) major credit
aspects. These major credit blocks are subdivided into sub-blocks to
properly evaluate LBP Lease’s credit practices.
1.1. Portfolio Quality – this is principally evaluated using a
quantitative assessment of the portfolio mix and past due rate and
amount set for valuation reserves. The following parameters shall
be used to measure performance for each sub-block:
1.1.1. Portfolio Mix – the sub-block measures the
diversification of the lease/loan portfolio in terms of type
of project and/or borrower.
1.1.2. Past Due Rate (Amount) – total past due balance
against total loan balance should not exceed the
approved limit of 10% for commercial sector and 20%
for agrarian sector.
1.1.3. Valuation Reserve (VR) – amount set as required to
cover probable losses should not more than 20% of the
total lease/loan portfolio and recommended VR should
sufficiently cover the amount required for probable
losses.
1.2. Process Quality – this other major block is an assessment of the
procedures in the marketing and administration of accounts based
on credit policies and procedures established by LBP Lease. The
process is also categorized into the following sub-blocks:
1.2.1. Target Market – the review shall determine if the
account solicitation activities are systematically
undertaken considering the prescribed target market and
Risk Asset Acceptance Criteria.
1.2.2. Credit Initiation and Analysis – the review will focus
on the quality of evaluation and analysis of credit risks
that result in the extension of credit. It touches on the
packaging and approval of credit facilities.
1.2.3. Lease/Loan Documentation and Disbursement –
this shall involve the verification of the appropriateness,
adequacy and completeness of lease/loan
documentations, as well as compliance to all pre-release
conditions of lease/loan and collateral documentary
requirements. Also, the review shall see to it that all
availments, renewals, extension and other credit-related
transactions are properly approved.
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CREDIT MANUAL
1.2.4. Credit Administration and Documents

Management – the review shall validate the
effectiveness of the credit monitoring and supervision
and support system. It shall determine whether a “good
housekeeping” system is in place and working.
1.2.5. Problem Recognition – the review shall assess the
ability to anticipate adverse factors affecting credit risk
and to detect potential problem accounts, as well as
timely reporting of such events to the proper authorities,
classification of accounts and lodging of past due
accounts.
1.2.6. Lease/Loan Recovery Management – the review
shall evaluate the effectiveness of action plan on problem
accounts. Results of recovery measures, evaluation of
work-out plans and tracking of remedial actions shall also
be assessed. The disposal, utilization and administration
of acquired assets as well as collection of written-off
accounts shall likewise be evaluated.
2. Organization and Staffing
2.1. Organization and Deployment – this aspect of the review shall
establish the appropriateness of the organizational set-up in terms
of staff adequacy, work experience, delineation of functions,
account assignment and back-up system, among others.
2.2. Coaching and Training – the review shall determine the
availability and effectiveness of training programs and other
coaching tools in the delivery of functions.
C. CREDIT REVIEW PROCESS

1. Ideally, the credit review should be made yearly. Compliance and spot
reviews shall be made as the need arises.
2. All types of credit reviews shall be done in a surprise manner.
3. Ideally, the regular review duration shall not exceed forty-five (45)
working days. For compliance and spot reviews, duration shall be at a
maximum of fifteen (15) working days unless there is a need to extend.
4. Data requirements are essential in the smooth conduct of credit reviews,
hence, all concerned units are required to maintain an updated database
at all times.
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CREDIT MANUAL
5. The review proper shall involve the examination of credit documents and
related files of the accounts during the coverage of the review. Accounts
to be reviewed shall be determined by the IAU.
6. The auditor reviewer to supplement data gathering and to clarify issues
shall do interviews of the Account Officers simultaneously.
7. For each account reviewed, the auditor shall issue Comment Sheet
containing queries and audit exceptions that should be answered by the
responsible Account Officer and noted by the Group Head.
8. Comment Sheet shall be returned to the auditor interviewer at an agreed
time but not more than three (3) days from date of receipt. These would
serve as basis in the preparation of draft of Discussion Draft Report,
which will contain all exceptions not duly clarified during the review
proper.
9. Project visitations shall also be undertaken by the auditor to augment
information gathered from working files. Account validation shall either
be coordinated with the AMG or the auditors may opt to conduct project
calls on their own.
10. Minimum sample size shall be 35% of total number of accounts and 65%
of total lease/loan balance.
11. Pre-Exit Conference shall be done by the IAU to ensure that all issues are
discussed in detail, clarified and understood. This also serves as venue
for the IAU to further coach Account Officers on the proper way of
implementing credit procedures, if there is a need.
However, the pre-exit activity may be dispensed with in cases where the
audit findings are reasonably minimal and such issues could be sufficiently
covered during the conference provided a mutual agreement has been
made between the auditee and the auditor.
12. The Exit Conference shall be held among the audit team and the
concerned Group Heads and Account Officers to discuss
findings/exceptions contained in the draft of the Audit Report, which shall
be submitted to them by the auditor reviewer at least three (3) days prior
to the scheduled date of the Exit Conference.
13. The final Internal Audit (IA) Report shall incorporate the issues taken up
during the Exit Conference. The IA Report shall be basis of the auditee’s
official response memo, which shall be course through appropriate
channels and submitted to the Chairman of the Audit Committee.
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LBP LEASING CORPORATION

Commission (SEC) rules and regulations, the Philippine Accounting

 Changes in institutional policies and practices which are based on

amendments, revisions or updates thereon, which will be distributed to the

Initial Issue/ Date Previous

June 29, 2004 Credit Policy

Attached as Annex ____ are the amended sections of this manual.

II. CREDIT ORGANIZATION AND PROCESS

6. Monitor and supervise all outstanding lease and credit facilities.

C. CREDIT SUPPORT UNITS

1.4.2. Conduct credit investigation of lessees, borrowers, and other

III. FOUNDATION OF CREDIT OPERATIONS

Variants of Leasing Facilities

1.3.2. Full-Service Lease

 Construction and/or improvement of client’s fixed asset/s that

2.2. Working Capital Financing

Variants/Purposes of Credit Line

2.2.2. Permanent Working Capital Financing

2.3. Receivable Discounting/Purchase

3. SPECIAL CREDIT PROGRAMS

3. Corporate Clients – Corporations or institutions with total assets (net

C. RISK ASSET ACCEPTANCE CRITERIA

Acceptance Parameters General Acceptance Criteria

Acceptance Parameters General Acceptance Criteria

1.2. Other major considerations include the following:

Acceptance Parameters Acceptance Criteria

2.1.1. Local Government Units

2.2. Small and Medium Enterprises

2.2.2. For Operating SMEs

2.3. Corporate Clients

Acceptance Parameters Acceptance Criteria

2.5. Financial Institutions

2.5.2. Financing Companies and Other Non-Bank Financial

2.5.3. Thrift Banks, Commercial Banks and Universal Banks

2.6. Clients of Special Financing Programs

D. CREDIT PROCESS FLOW

Prepare strategic plans and

Origination Initiate, evaluate, negotiate and

Review, endorse and approve

Gather and review all required

IV. CREDIT INITIATION

Approved Information Gathering

LBP LEASING CORPORATION

Documentary Conduct Preliminary Application

LBP LEASING CORPORATION

CFP Review proposal and Endorsed CFP Approving

Endorsed BBI Approving

LBP LEASING CORPORATION

Review basic legal

Reviewed basic Signed basic

C. GENERAL CREDIT GUIDELINES

The refer to the type and nature of asset/s to be

ensure that the transaction date for payments and re-pricing

provide LBP Lease with an updated list of accredited insurance

The conveyance of a real estate property as security for

In the suretyship, the creditor deals/transacts with both

7.2.1. President (or its equivalent);

7.9. In case a borrower’s stockholder is a foreign corporation, checking

7.15.1. Affiliates or stockholders of the borrower; and

D. CONSIDERATIONS IN PACKAGING/STRUCTURING CREDIT TERMS

E. CREDIT APPROVAL MEDIUMS AND RELATED DOCUMENTS

F. ADVICE OF APPROVAL AND DISAPPROVAL OF CREDIT FACILITIES

Prepare Availment Memo