Exploring loan liabilities

The term "Approved but Unreleased Loan Liabilities" likely refers to loans that have been approved but not yet distributed, creating contingent liabilities. In the Philippines, this could be reflected in reports by institutions like the Bangko Sentral ng Pilipinas (BSP), government agencies like the COA or DBM, or even municipal development funds. It might also relate to loans for public-private partnerships or security for government-owned corporate entities (GOCCs). These circumstances usually involve approved loans still awaiting disbursement.

Breaking down loan liabilities

In legal terms, "Approved but Unreleased Loan Liabilities" involves loans approved but not yet disbursed, recorded as undrawn commitments in reports. In the Philippines, this might be linked to banking laws, fiscal regulations, or government accounting practices (COA/DBM). We must consider reporting standards like PFRS 9, credit risk management (Basel III), and cases where a bank withdrew approval (e.g., Land Bank v. CA). The loan is not "perfected," meaning the borrower has no enforceable contract until funds are delivered, raising issues on rights, conditions, and government loan programs.

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“Approved but Unreleased Loan Liabilities” in Philippine Law and Practice (A comprehensive doctrinal and practical guide)

Abstract

In the Philippines, an “approved but unreleased loan liability” (AULL) describes a credit facility that has obtained final internal approval from the lender—be it a bank, a government financial institution (GFI), or a multilateral creditor—but whose proceeds have not yet been disbursed. An AULL is therefore only a contingent or off-balance-sheet exposure for the lender, but it is already a critical legal and financial commitment for the borrower and for regulators tracking systemic risk. This article consolidates every major legal, regulatory, accounting, and jurisprudential angle relevant to AULLs in the Philippine context, current to 8 May 2025.

1. Conceptual and Legal Definition

Element	Explanation	Principal Sources
Nature	An AULL is a loan commitment—a perfected promise by the lender to make funds available once conditions precedent are satisfied.	Civil Code arts. 1315–1319 (consensual contracts) and art. 1934 (commodatum/loan perfected upon delivery); BSP Manual of Regulations for Banks (MORB) §1111N (commitments).
Perfection vs. consummation	The loan contract is perfected upon meeting of the minds (i.e., credit approval + acceptance of the terms by the borrower), but is consummated only upon release of funds.	Supreme Court, Land Bank v. Court of Appeals, G.R. 127020 (2000).
Contingent liability	Until drawdown, the exposure sits in the bank’s “unconditionally cancellable commitments” or “commitments with an original maturity of ≤ 1 year,” attracting a specific Credit Conversion Factor (CCF) under Basel III.	BSP Cir. 538 (2006); Cir. 990 (2018) implementing Basel III.
Binding effect	Unless expressly made revocable, an approval letter coupled with the borrower’s acceptance creates a binding obligation; revocation without cause may give rise to damages under art. 1170 (abuse of rights).	Soriano v. People’s Bank & Trust, G.R. 166132 (2011).

2. Regulatory Framework

2.1 Bangko Sentral ng Pilipinas (BSP)

Prudential reports – AULLs appear in the Contingent Accounts Schedule of the Financial Reporting Package (FRP).
Capital treatment – Assigned CCFs under Part I, Appendix 63 of the MORB; Expected Credit Loss (ECL) provisioning under PFRS 9 is mandatory.
Single Borrower’s Limit (SBL) – AULLs count toward the 25 % SBL (General Banking Law, RA 8791, §35).

2.2 Securities and Exchange Commission (SEC)

Philippine Financial Reporting Standards (PFRS 9) require listed firms to disclose undrawn but committed credit lines in the notes to financial statements as “Commitments and Contingencies.”

2.3 Commission on Audit (COA) & Department of Budget and Management (DBM)

Government agencies treat AULLs akin to “Approved but Unreleased Allotments (AUA)” in their Fund Sources Registry.
The national government records approved but undisbursed Official Development Assistance (ODA) loans as Contingent Liabilities in accordance with COA Circular 2022-001.

2.4 Local Government Units (LGUs)

LGU borrowings need Monetary Board concurrence (LGC §123) and DOF/Bureau of Local Government Finance approval.
Once approved but undrawn, the liability is booked in the Registry of Contingent Liabilities (RCL) until actual drawdown.

3. Accounting Treatment (PFRS 9 and BSP rules)

Stage	Bank Books	Borrower Books
Approval	Record under Contingent Accounts; calculate Stage 1 ECL on the undrawn commitment.	No entry; disclose in notes as “credit line approved but undrawn.”
Signing/Acceptance	If irrevocable, shift to Commitments with appropriate CCF for risk-weighted assets (RWA).	Recognize Commitment Fees if paid; still off-balance-sheet for principal.
Drawdown	Debit “Loans Receivable,” credit “Due from Demand Deposit” (cash).	Debit “Cash,” credit “Loans Payable.”

4. Civil-Law Issues and Jurisprudence

Nature of consent – In Guzman v. Court of Appeals, G.R. 76637 (1990), the Court held that a credit approval letter, once accepted and not conditional, binds the bank.
Conditions precedent – Common conditions include REM/Chattel Mortgage registration, insurance endorsement, and submission of post-approval documents. Failure to comply releases the bank from its commitment (Phil. Bank of Communications v. CA, G.R. 121697, 2006).
Damages for arbitrary revocation – The borrower may claim actual, moral, and exemplary damages if the bank withdraws after acceptance without legal cause (Sea Commercial Corporation v. Citytrust, G.R. 122211, 1998).
Doctrine of Reasonable Reliance – Borrower expenditures incurred in reliance on an irrevocable commitment may be recoverable as damages.

5. Public-Sector AULLs and the National Debt Pipeline

Treasury Monitoring – The Bureau of the Treasury’s Cash & Debt Management Service tracks “Committed Loans Not Yet Effectively Disbursed (CNYED).” Commitment fees begin accruing from the loan-signing date, incentivizing timely drawdown.
ODA Statistics – As of FY 2024 year-end, roughly ₱1.3 trillion of ODA loans were approved but 52 % remained undisbursed, driving annual commitment-fee expenses of ≈ ₱4 billion.
Effect on Public Debt Ratio – While CNYEDs are not booked as outstanding debt, multilateral ratings agencies monitor them as part of “potential debt.”

6. Risk, Compliance, and Consumer Protection Considerations

Perspective	Key Risk	Mitigating Requirement
Bank solvency	Sudden mass drawdown can pressure liquidity ratios.	BSP Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) assume a standard drawdown percentage on AULLs.
Macroeconomic	Undisbursed ODAs can mask the true future financing need of the public sector.	Medium-Term Debt Strategy includes stress-tests for full drawdown scenarios.
Consumer	Home-buyers left in limbo if housing loan is revoked post-approval.	BSP Consumer Protection Standards; mandatory disclosure of conditions precedent and expiry dates of loan approvals.

7. Practical Issues for Borrowers

Letter of Guaranty (LOG) vs. AULL – A LOG issued to a developer is a form of approved but unreleased liability; validity typically 60–90 days.
Commitment Fees – Usually 0.25 – 1 % p.a. on undrawn amounts, accruing quarterly.
Expiry or Lapsing – Approvals commonly lapse after 90–180 days if conditions precedent remain unmet, automatically cancelling the commitment.
Documentation Tips –
- Secure a firm commitment clause (“irrevocable, subject only to CPs”)
- Track CP deadlines via counsel’s tickler system
- Obtain extension letters before the lapsing date.

8. Comparative Notes

Country	Similar Concept	Notable Difference
US	“Undrawn Revolver Commitments”	FDIC assigns 20 % CCF for ≤ 1 year commitments; Philippines can apply 0 % if unconditionally cancellable.
EU	“Pipeline Loans”	IFRS 9 identical; however, ECB’s additional supervisory reporting requires daily liquidity stress numbers.
Japan	“Approved but Undisbursed Loans (ABUDL)”	Commitment fees federally regulated; capped at 0.15 % p.a.

9. Checklist for Counsel Drafting or Reviewing Philippine AULL Documents

Identify parties and regulatory status (bank, GFI, foreign lender).
Check board or credit-committee approval resolution.
Spell out conditions precedent and attach a timetable.
State commitment fee mechanics clearly.
Include a material adverse change (MAC) clause if lender insists.
Clarify revocability: use “irrevocable” if borrower leverage is strong.
Add a governing-law clause (Philippine law unless foreign-currency loan requires cross-border enforceability).
Provide for dispute resolution (courts vs. arbitration).

10. Conclusion

Approved but unreleased loan liabilities occupy a grey zone where contractual rights exist but monetary delivery has not yet occurred. Philippine law treats them as binding commitments subject to civil-law principles, prudential regulations, and detailed accounting rules. For borrowers, understanding AULLs is critical to project timing, compliance with conditions precedent, and protection against arbitrary revocation. For lenders and regulators, AULLs are a primary channel of liquidity and credit risk, demanding rigorous monitoring and capital treatment. Mastery of the concepts, rules, and jurisprudence summarized above equips practitioners to navigate—and strategically leverage—this pivotal phase of the lending cycle.

Prepared 8 May 2025 — Manila, Philippines.