The middle class speaks

Published August 9, 2020, 10:58 PM

by Atty. Gregorio Larrazabal


Last week was a terrible week for the country and our economy.  We surpassed Indonesia as having the most COVID-19 cases in Southeast Asia.  We surpassed Indonesia, which has a population of almost 300% more than the Philippines.  On the economic front, second quarter figures showed that we had the WORST GDP contraction in Southeast Asia.

We’re now in a recession — the first in nearly 30 years.  Based on numbers, in the second quarter of this year, we had the worst economic contraction in Philippine history.  Many are already suffering.  You see more people on the streets begging for alms.  With public transportation halted and jeepneys not allowed to ply their routes (despite the opinion of some medical experts), many daily wage earners can’t work, and as a consequence, can’t get paid.  Many in Metro Manila are the end of their rope.  But they don’t complain publicly, for various reasons.

With the state of the economy spiraling down, I decided to read more news about the economy and I saw an interesting article written by Lawrence Agcaoili which caught my attention.  It referred to the Bangko Sentral ng Pilipinas’ Memorandum No. M-2020-061 issued by the Office of the Deputy Governor dated 03 August, 2020 (  I googled and the subject of the Memorandum was “Supervisory Expectations on the Measurement of Expected Credit Loses and the Treatment of Regulatory Relief Measures Granted Amid the Novel Coronavirus Disease 2019 (COVID-19) Pandemic.“

Now, before I continue, I want to just emphasize something.  I’m no banking expert, or finance guy.  Far from it.  There are many nuances of the banking industry which I am not too familiar with.  But something about the memorandum got my attention, and made me want to know more about it, as I believe the issuance will affect not only big businesses, but also SMEs, which, frankly, are struggling to make ends meet now.

This portion of the memorandum got my attention in particular:

The supervisory expectations provide that [BSP-supervised financial institutions] that will avail of the regulatory relief measures to exclude eligible loans from past due and non- performing classifications and to stagger the booking of allowance for credit losses shall continue to report actual past due and non-performing loans and allowance for credit losses in the Financial Reporting Package (FRP) and the Capital Adequacy Ratio (CAR) reports. This is to facilitate the generation of industry statistics and provide the BSP with information on the true health of the banking system.

“The application of the regulatory relief measures shall be reflected in the supplemental report that will be submitted to the BSP (Attached as Annex A). The adjusted past due, non-performing loans, and allowance for credit losses of the bank after applying the relief measures shall be used in supervisory assessments and in crafting thesupervisory plan for the BSFI.”

It seems the BSP is anticipating higher defaults and is taking steps to mitigate its impact on the economy.

So this is what this made me ask:

“What if a bank has several clients, say 20, who have credit lines of P20 million each?  These are borrowers who have been diligent in payment of their existing loans and never defaulted.  But the same bank has a client who has an existing loan of P15 billion with one VIP client. Due to the precarious financial instability, there is a big chance that the VIP borrower will default on his payments.  Now, under normal circumstances, the bank will have to ensure that the ratio of loans, with reference to the non-performing loans (NPL) will constrict it from releasing the credit lines to the other clients, precisely in anticipation of the VIP client who “probably” will default.  This is to comply with the minimum capital adequacy ratio, liquidity coverage ratio and other reserve requirements.”

So what happens to the SMEs who are expecting to be able to tap on the credit line, to help them sustain their business?  Will they still be able to avail of their credit line, or will they be sacrificed for the VIP with the big loan, which the bank expects to default?  I hope not, because at this time, the small businesses need all the help they can get.  Times are hard, and many of the small businesses, especially in the hospitality industry, have suffered tremendously, and are finding ways to recover.  Trying to keep their business/es alive and at the same time retaining their employees.

I’m hoping the BSP memorandum will help the ordinary Filipino businessmen/businesswomen during these very difficult times. Central Bank Governor Diokno said the third and fourth quarters of the year will be better for the Philippines.  There is a glimmer of hope for the business community.  Let’s hope that steps are taken to ensure the SMEs are given enough assistance and opportunities to help them overcome the challenges.  Most of those who own SMEs are in the middle class of society.  They need the government’s help as much as the big businesses.