BSP intensifies watch on salary loans

MANILA, Philippines - In reponse to the rising trend in salary loans, the Bangko Sentral ng Pilipinas has approved a new circular defining salary loans and enhancing the reporting templates used by banks, non-stock savings and loan associations.

“Reacting to the rising trend in salary loans in terms of volume and number of accounts, the Monetary Board has approved a new circular specifically defining salary loans and enhancing the reporting templates used by banks, non-stock savings and loan associations to accurately measure its volume,” the central bank said in a statement.

Salary loans are considered unsecured loans extended to individuals on the basis of a fixed compensation and the repayment would be made from salary deduction, debit from borrower’s deposit account, over-the-counter payment, or any other type of arrangement agreed upon.

The BSP said banks and other regulated institutions are now required to detail salary loans under the “Loans to Individuals for Consumption Purposes” sub-category. Earlier, only credit card and auto loans are needed to be reported separately under said item.

This new circular will cover the reporting period ending June 2014 and onwards, the BSP stressed.

“A large and growing number of bank and non-bank institutions compete for the salary loan business and that the banking system has a significant market share of the whole pie,” the BSP said.

The central bank added there remains to be other players such as informal lenders that are not included in the official financial system statistics.

“With the enhanced reporting from its supervised entities, the BSP can now collect data for better monitoring of salary loans that will support more pro-active policy making,” the central bank said.

The BSP said it is preparing a regulatory and policy framework on salary loans to ensure that supervised institutions are “well-managed” and their credit underwriting practices “subscribe to safety and soundness principles.”

The framework will also include consumer protection issues such as possible over-indebtedness that should be addressed promptly.

Such would also include actual practices, macro-economic environment, and the interaction between lenders, government agencies, firms, and borrowers.