Bankers laud new BSP policy

The Cebu banking industry welcomes the move of the Bangko Sentral Ng Pilipinas (BSP) to further tighten the rules on unsafe and unsound practices including aggressive deposit-taking and offering expensive loans to low-quality borrowers.

"We are supporting the new BSP regulations since this will strengthen better controls in closer monitoring to banking industry and would surely result to better banking operation in healthy financial markets" said Cebu Bankers Club (CBC) former president Prudencio Gesta.

Gesta, who is also the deputy for the Visayas of Rizal Commercial Banking Corporation (RCBC) said that strong public confidence in the banking industry is very important to encourage more investors to undertake more economic activities, which at the end more beneficial to the earning capacity of the people, as well as income to the government.

Prompted by the failure of at least 15 rural banks around the country in the last two months, the BSP said it is issuing a new circular that would expand the list of bank practices that are considered unsafe and unsound.

For his part, Metrobank first vice president and head for the Visayas region, Bernie H. Tocmo he said that the move of BSP to further monitor the unsafe activities of some banks in lending to less credible borrowers, is good for the entire banking sector, as it will promote more confidence in the financial market here.

Tocmo said that in Cebu, Cebuanos are more prudent in terms of aggressive corporate borrowing. Unless the money is badly needed, corporate clients in Cebu are very conservative in getting corporate loans from the banks.

Eduard Gaisano, whose family-operated company Vicsal Development Corporation, owns the chain for thrift bank in the country—Wealth Bank, said that banks now are always looking for quality accounts, and have learned their lessons after the regional crisis in 1997.

According to Gaisano, although the SME loans have become active now, with industry past-due rate is at single digit, Wealth Bank is exercising very strict corporate loan approval to ensure quality accounts for corporate loans.

Recently, BSP Deputy Governor Nestor Espenilla, said most of these prohibitions are implicit in existing BSP rules but regulators decided to make them explicit, with specific quantitative markers for banks and examiners to follow.

"The idea is to warn banks engaged in these activities that we are probably going to be more aggressive in issuing cease- and-desist orders (CDOs) if we find them engaged in unsafe and unsound activities," Espenilla said.

"Obviously, we are drawing from the lessons of the recent past where several banks were shut down," he added.

Espenilla said the BSP would now classify aggressive deposit-taking as unsafe and unsound practice, based on specific criteria approved by the Monetary Board.

"If a bank is following this as a business model, then we would consider that as unsafe and unsound," Espenilla said. "That would include offering extremely high interest on deposit as well as offering non-cash rewards that are disproportionate to the deposits."

Espenilla said the BSP also included as unsafe and unsound the practice of disproportionate lending to low-quality borrowers and charging high interest rates.

BSP believes that some banks have been found extending expensive loans to borrowers that other institutions would not consider credit-worthy. Although not unsafe by itself, he said banks that do this too much would be putting their institutions at risk.