Under the Local Government Code (LGC), local governments may 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 terms and conditions as may be agreed upon by the LGU and the lender. The proceeds from such transactions accrue directly to the LGU. However, an LGU can only incur expenditures for debt servicing up to 20% of its annual regular income.
Every loan application must comply with the requirements of the DOF, the Bureau of Local Government Finance (BLGF), and the Bangko Sentral ng Pilipinas (BSP).
A. Certification by the BLGF of an LGU’s (i) Net Debt Service and (ii) Borrowing Capacity ceilings, per DOF Local Finance Circular No. 1-2012
- Letter-request from the Local Chief Executive (LCE) indicating the selected lending institution, terms and conditions of the proposed loan (repayment period and interest rate), and the specific purposes of the proposed loan.
- Approved and Uploaded Statement of Receipts and Expenditures for the past 3 years
- Certification of absence of loan/s, when applicable
- Certification of existing and approved loans, when applicable
- COA Annual Audit Certificate for the past 3 years with no adverse findings against the LGU (supported by Pre-Closing Trial Balance, Balance Sheet, and Statement of Income and Expenditures)
- Certification by the local accountant that the LGU has not incurred default in the payment of existing loan amortization
- Certification from the secretary of the Sanggunian that the proposed project to be financed by the loan is included in the Approved Annual Investment Plan for the current year
- Authenticated copy of the Ordinance/Resolution authorizing the LCE to negotiate and contract a loan in behalf of the LGU
- For loan applications related to foreign-assisted projects: Certified Statement of Income (DBM LBP Form No. 1) and Statement of Fund Operation (DBM LBP Form No. 8)
- Certification issued by the lending institution that it shall not be requiring LGU deposits as compensating balance for the loan if such lending institution is (i) not an authorized government depository bank or (ii) an authorized government depository bank required to obtain the prior approval of the DOF per Department Order No. 27-05
- DILG Seal of Good Housekeeping award to the LGU (Seal of Good Financial Housekeeping)
- Proof of Compliance with the DILG Full Disclosure Policy, per DILG MC No. 2010-83
B. Requesting for the BSP Monetary Board (MB) Opinion (to be submitted by the LGU or by the lending bank on behalf of the LGUs to BSP), per BSP Circular No. 769 s. 2012:
- Letter by the LGU, or the lending bank on behalf of its client LGUs, requesting for the MB opinion on the proposed loan, and providing information on the terms and conditions of the proposed loan (i.e., loan amount, purpose of loan [whether for infrastructureor importation of equipment, etc.], interest rate, maturity, fees and other charges).
- Certification on the debt service and borrowing capacity of the LGU obtained from the Department of Finance – Bureau of Local Government Finance (DOF-BLGF).
- Designation of a contact person/s responsible for coordinating with the BSP along with contact information, and a Sanggunian Resolution on the specific acts/services he/she has been authorized to perform.
- Indication of the lending bank on the source of the funds to be lent to the LGU.
C. Release of Loan Proceeds (to be submitted by LGU to the lending institution)
- Upon approval of the loan agreement: Ordinance ratifying the loan agreement, including the terms and conditions of the loan, entered into by and between the local government unit and the lending institution
- Other applicable requirements under the LGC, such as the provincial validation of the municipality/city ordinance, if applicable, or municipal/city validation of barangay ordinance.
- A waiver on the confidentiality of investment and bank deposits, whether in peso or foreign currency. Such waiver should be duly executed by the mayor or governor or barangay chairman as the case may be, and supported by a duly-executed “waiver resolution”.
D. Request for MB Opinion on LGU Borrowings to be Obtained from Other Financial Institutions not under the Supervision of the BSP
- All documentary requirements and information under B and C shall be submitted to the BSP by the borrowing LGU, together with its request for MB opinion, in case the loan will be obtained from other lending institutions not under the supervision of the BSP.
E. Post-Borrowing Reports
- The borrowing LGU, or its duly authorized representative or through the lending bank, shall submit to the BSP a post-borrowing report that will indicate the actual amount of the domestic borrowing as well as the final terms and conditions thereof within 30 calendar days from the full release of loan proceeds and other reports as may be required by the BSP.
- In addition, the local treasurer is required by the BLGF to submit a post-borrowing report.