SEC to lending firms: Comply with limits

MANILA, Philippines - Companies and entities engaged in handing out loans are now required to be more prudent in lending to related parties.

In a memorandum dated April 8, the Securities and Exchange Commission (SEC) said it is “requiring lending companies to comply with the single borrower limit and credit limit on DOSRI.”

DOSRI refers to directors, officers, stockholders and their related interests.

“The total credit that a lending company may extend to its directors, officers and stockholders shall not exceed 15 percent of its net worth,” SEC said.

The Lending Company Regulation Act of 2007 defines a lending firm as a company “engaged in granting loans from its own capital funds or from funds sourced from not more than 19 persons.”

It does not include banking institutions, investment houses, savings and loan associations, financing companies, pawnshops, insurance companies, cooperatives and other credit institutions already regulated by law.

Specifically, loans and other credit extended by a lending company to specific entities will be deemed extended to its DOSRI: loans handed out to spouses or close relatives the loan company’s officers, directors or stockholders; partnership in which a director or officer or stockholder of the lending company is a general partner; corporations where a director or officer or stockholder of the lending company is a director or officer of the debtor; corporations where more than 20 percent of its capital stock is owned by a director, officer of stockholder of the lending firm; and corporations wholly-or majority owned by entities.

Corporate regulators have put in place a mechanism to penalize erring lending firms.