Application for LGU Loan




Local Government Units are empowered under Section 296 of the Local Government Code (LGC) to create indebtedness, and avail of credit facilities to finance local infrastructure and other socio-economic projects in accordance with the approved Local Development Plan and Public Investment Program. LGUs may avail of credit lines from government and private banks and lending institutions for the purpose of stabilizing local finances. Among others, LGUs are allowed to engage in deferred payments, contract loans, credits, and other forms of indebtedness to finance the construction, installation, improvement, expansion, operation, or maintenance of public facilities, infrastructure, housing projects, the acquisition of real property, and the implementation of other capital investment projects, subject to the terms and conditions as may be agreed upon by the LGU and the lender.

Given this opportunity, the Department of Finance as one of the oversight agencies of the LGUs, was in turn mandated to render technical assistance to LGUs in the availment of credit facilities, flotation of bonds, contracting of loans and issue guidelines for the purpose.

Under Section 324 of the LGC, the ceiling of LGU borrowing was defined allowing them to incur an appropriation for debt service amounting to 20% of its annual regular income.

Government regulates through ex-ante controls on LGU borrowings: i) An LGU must secure the Certificate of Net Debt Service Ceiling (NDSC) and Borrowing Capacity (BC) from BLGF and ii) A favourable Monetary Board Opinion from the BSP.

In 25 October 2016, DOF Department Oder No. 054.2016 was signed by Secretary Carlos G. Dominguez III streamlining the certification of Net Debt Service Ceiling and Borrowing Capacity of LGUs. The new DO has effectively reduced streamlined the certification of NDSC and BC of LGUs by the BLGF, by reducing the documentary requirements form twelve (12) to four (4), defining the specific computational parameters, and improved the process to ensure faster, accurate and efficient certification process. The BLGF has also devolved the process review of completeness and orderliness of documents to all BLGF Regional Offices, and for the initial computation of the NDSC and BC.

A. STREAMLINED DOCUMENTARY REQUIREMENTS AND ITS GENERAL GUIDELINES PER DOF DEPARTMENT ORDER (DO) No. 054.2016

  1. Letter request from the Local Chief Executive indicating the specific/s:

    a. Lending Institution (LI);
    b. Terms and condition of proposed loan; and
    c. The purpose/s of the loan.

  2. Certification of existing loan/s duly certified by the Local Treasurer indicating the following:

    a. Types and purpose of loans and other obligations contracted;
    b. Name of LI;
    c. Date of approval and maturity;
    d. Terms and conditions;
    e. Remaining balances of loan/s and other obligations; and
    f. Annual amortization schedules from LI.

  3. Commission on Audit (COA) Annual Audit Certificate for the most recent year shall be supported by the year-end financial reports for the past 3 years:

    a. Pre-closing trial balance; and
    b. Detailed Statement of Financial Performance.

  4. Certification issued by the Lending Institution stating that it shall not require LGU deposits as compensating balance for the loan (for nonauthorized government depository banks.)

B. PROCESS FLOW

LGU Loan Application Process

LGU Loan Application Process

C. GUIDELINES IN PROCESSING REQUESTS FOR MONETARY BOARD OPINION ON THE MONETARY AND BALANCE OF PAYMENTS IMPLICATIONS OF PROPOSED DOMESTIC BORROWINGS BY GOVERNMENT ENTITY PER BSP CIRCULAR NO. 926 SERIES OF 2016

  • Procedures

    a. The LGU shall submit a written request to the Bangko Sentral ng Pilipinas (BSP) for MB opinion on the monetary and BOP implications of its proposed borrowing prior to the loan release;

    b. The BSP shall acknowledge receipt of the request, with an initial evaluation of the documents/information submitted;

    c. Once the LGU has submitted the complete set of required documents/information, the matter shall be elevated to the MB for an opinion on the probable monetary and BOP implications of the proposed loan;

    d. The LGU shall be informed of the writing of the MB’s decision of its request for the opinion;

    e. No opinion will be issued by the MB in case the LGU loan has already been partially or fully disbursed;

    f. For LGU loans with amounts that exceed the borrowing capacity, as indicated in the certification on the borrowing and debt services capacity issued by the Bureau of Local Government Finance (BLGF), the MB opinion will refer only to the amount that is within the borrowing capacity;

    g. The LGU shall request a new MB opinion should there be any increase in the loan amount in excess of 10%, or a change in a manner of acquisition of the project/s to be funded after an MB opinion has been issued ; provided that no release has been made of the loan; and

    h. LGUs that are unable to avail of their loan during the one (1) year validity period shall request for a new MB opinion on their proposed loan.

  • Four (4) steps to be followed by LGUs in requesting for MB Opinion:

    Step 1: LGU submits written request to BSP for MB opinion accompanied by the required documents and information;

    Step 2: Request will be processed once all required documents and information are submitted. If there are incomplete documents, the BSP will inform the LGU of the document/s or information that should be submitted;

    Step 3: LGUs with complete documentation will be elevated to MB for opinion on monetary and BOP implications of proposed loan. The BSP has informed BGEs through their public information campaign (PIC) that MB meets every Thursday; and

    Step 4: The BSP to transmit letter containing MB opinion to the LGU.

  • RELEASE OF LOAN PROCEEDS (TO BE SUBMITTED BY LGU TO THE LENDING INSTITUTION)

    a. Upon approval of the loan agreement: Ordinance approving the proposed loan terms and conditions as well as the specific purpose and corresponding amount/s of the project/s to be funded;

    b. Other applicable requirements under Republic Act No. 7160, such as the provincial/city/municipal validation of the ordinance, as applicable; and

    c. Waiver on the confidentiality of investment and bank deposits, whether in peso or foreign currency, duly executed by the governor/mayor/barangay chairman, as the case may be, and supported by a “waiver resolution”.

D. REPORTORIAL REQUIREMENTS

  • Post-Borrowing Reports (PBR)

    The borrowing LGU shall submit to BSP, through a letter addressed to the Director, Department of Economic Research or through electronic mail addressed to mbopinion_der@bsp.gov.ph, a post-borrowing report (PBR) that will indicate the actual amount of loan, the final terms and conditions, and utilization of the proceeds of the borrowing within Thirty (30) calendar days after the final release of loan proceeds

  • Post-Loan release Report (PLRR)

    The lending institution shall submit to BSP, through a letter addressed to the Director, Department of Economic Research or through electronic mail addressed to mbopinion_der@bsp.gov.ph, a semestral post-loan release report on LGU loans granted in full within the last six months that will indicate the actual amount of loan released as well as the final terms and conditions thereof, within thirty (30) calendar days after the end of each semester.

  • Sworn Certification on Lending to Local Government Units (LGUs)

    The BSFIs shall submit, through a letter addressed to the appropriate department of the SES, within fifteen (15) banking days after every semester, a duly notarized certification on loan releases to LGUs signed by the president or an officer of equivalent rank and the chief compliance officer. Such certification shall be considered as a Category A-2 report for purposes of imposing fines on the delayed submission of required reports pursuant to existing regulations.

  • Statement of Indebtedness, Payments, and Balances (SIPB)

    The Province/City/Municipality, through the Provincial/City/Municipal Treasurer, shall report annually through a duly completed Statement of Indebtedness, Payments, and Balances (SIPB), to inform this Office of the status of the loan application/s, releases, and payments.




Department of Finance