Be prudent in lending to LGUs, says Bangko Sentral

Exercise prudence when lending to local government units by observing and complying with the borrowing limits set by the Department of Finance, the Bangko Sentral ng Pilipinas said Monday.   In Circular Letter No. 2012-030, BSP Deputy Governor Nestor Espenilla Jr. on Monday spelled out the limits on the amount of money LGUs may borrow based on the policy established by the Finance Department’s Bureau of Local Government Finance (BLGF).   “All banks are directed to adopt and adhere to the policy limits set by the DOF through the BLGF in granting loans and credit accommodations to the LGUs,” Espenilla noted.   The deputy governor pointed out that banks should ask local governments to submit a Certificate of Net Service Ceiling and Borrowing Capacity issued by the department’s BLGF.   In a Feb. 7, 2012 letter to the Bangko Sentral, BLGF officer in charge Salvador del Castillo said the bureau issues the certificate to LGUs.   “It may be more feasible for the government financial institutions, private banks, and other lending institutions to exercise prudence in the grant of loan to LGU taking into consideration their paying capacities and the viability of projects to be funded from the proceeds of the loan,” according to Del Castillo.   He cited Section 324 of the Local Government Code of 1991 did not provide a limit as to the amount an LGU might borrow, noting that the maximum debt service allocation in the local budget is 20 percent of its regular income.   Both existing and proposed loan amortization should not exceed 20 percent of the current estimated annual income of LGUs plus internal revenue allotment (IRA) for the current year, Del Castillo added.     The BLGF is mandated under Republic Act 7160 or the Local Government Code of 1991 to help the department formulate and execute policies, rules, and regulations governing local taxation, real property valuation or assessments, and in how local government conduct their respective financial affairs. —VS, GMA News