BSP extends regulatory relief measures

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is further extending until end-2021 the regulatory relief measures given to banks and financial institutions despite a recommendation from the International Monetary Fund (IMF) to allow the forbearance measures to lapse as scheduled and avoid the introduction of new measures.

BSP Deputy Governor Chuchi Fonacier said the Monetary Board issued Memorandum 2021 – 026 last April 22 amending the credit-related regulatory relief measures for BSP-supervised financial institutions (BSFIs).

Fonacier said the amendments were put in place as an interim measure pending the full implementation of Republic Act 11523 or the Financial Institutions Strategic (FIST) Act of 2021.

The law, which allows banks to dispose of their bad assets to FIST corporations or asset management companies, is expected to reduce the banking industry’s non-performing loan (NPL) ratio by 0.63 up to 0.71 percentage points.

“As a general policy, BSFIs are encouraged to offer less onerous payment terms or restructure loan accounts with the consent of borrowers. In restructuring affected loan accounts, the original loan contractual terms and conditions should be modified in accordance with a formal restructuring agreement,” Fonacier said.

Fonacier said the restructuring arrangement should be based on terms agreed upon by the bank and the borrower, considering the paying capacity and cash flows, or sources of repayment of, as well as the changes in the timing and amount of their borrower’s cash flows, should be considered.

As part of the amendments, Fonacier said loans that have been reclassified as past due as of March 8, 2020, as well as loans that have become past due and non-performing by March 31, may be excluded from the past due and NPL reclassification until Dec. 31.

The gross NPL ratio of Philippines banks hit an 11-year high of 4.08 percent in February from 3.72 percent in January, reflecting further deterioration in the asset quality of the banking industry due to the impact of the COVID-19 crisis.

Preliminary data from the central bank showed soured loans of the banking sector surged by nearly 80 percent to P431.27 billion in February from P239.9 billion in the same month last year.

Past due loans or loans that are left unsettled beyond payment date, jumped by 71 percent to P551.47 billion as of February from P321.86 billion a year ago, while restructured loans amounted to P200.99 billion in February or 4.5 times the P45.04 billion booked in the same month last year.

Likewise, Fonacier said pursuant to national interest, the effectivity of the higher single borrower’s limit (SBL) was extended until December from the original target of March 31.

The SBL prevents an overconcentration of credit risk, and imposes a ceiling on the amount of loans, credit accommodations and guarantees which a bank or financial institution can extend to a single borrower or its related entities.

The IMF earlier said prompt loss recognition and NPL restructuring would help Philippine banks prevent sharp deleveraging and lead to faster recovery from the pandemic-induced recession.

In its latest Financial System Stability Assessment on the Philippines, the multilateral lender said the BSP should now withdraw forbearance measures introduced at the height of the COVID-19 outbreak last year.

“The central bank should allow forbearance measures to lapse as scheduled and avoid introducing new measures, as delayed loss recognition and NPL restructuring could limit credit growth,” the IMF said. The same scenario, it added, was observed during the Asian financial crisis in 1997.

“Forbearance does not address the underlying issues in weak banks and hampers banks’ ability to continue providing credit and ultimately may even undermine financial stability,” the IMF said.