BSP extends 30% SBL cap for banks until yearend

Published April 28, 2021, 7:00 AM

by Lee C. Chipongian

The Bangko Sentral ng Pilipinas (BSP) will allow banks to have a higher single borrower’s limit (SBL) of 30 percent until end-December this year, and to reclassify bad loans reporting pending the full operationalization of the Financial Institutions Strategic Transfer (FIST) Act.

These amendments to BSP’s rules and regulations are part of the credit-related regulatory relief measures for all BSP supervised financial institutions (BSFIs) hit by the COVID-19 health crisis.

In a new memo (Memorandum No. M-2021-026) signed by BSP Deputy Governor Chuchi G. Fonacier on April 26, the higher SBL as an additional operational relief measures is extended for another nine months after a previous extension expired on March 31. This is the third time that memos granting BSFIs’ with a higher SBL was extended.

BSP Deputy Governor Chuchi G. Fonacier (Bloomberg file photo)

Pre-pandemic, SBL was at 25 percent of a BSFIs’ capital. From time to time, the BSP increases the SBL cap or grants separate SBL but as a general rule, banks and non-banks should spread their risks.

The memo also extended the period for the exclusion of eligible loans from the past due and non-

performing loan (NPL) classification. These are loans affected by the two Bayanihan laws’ grace period and are restructured.

Loans which should have been reclassified as past due as of March 8, 2020, and loans that have become past due or have been considered as a bad loan six months from March 8, 2020 up to March 31 this year may be excluded from the past due and NPL classification until December 31, 2021.

Fonacier said the Monetary Board, in its Resolution No. 497 on April 22, approved amendments to BSP regulations on the credit-related regulatory relief measures for BSFIs affected by COVID-19 as an interim measure pending the full operationalization of the FIST Act this year.

 “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,” said Fonacier.

 “The restructuring arrangement should be based on terms agreed upon by the bank and the borrower, considering, among others, the latter’s paying capacity and cash flows or sources of repayment, including the changes in the timing and amount of their borrower’s cash flows,” she further noted in the memo.

The reporting period for Solo Financial Reporting Package and the supplemental report for the Capital Adequacy Report are also amended as per the memo.

The BSP is currently preparing three draft rules for the FIST implementation including proposed guidelines on eligibility issues and how banks’ non-performing assets (NPAs) will be treated under the new law.

BSP Governor Benjamin E. Diokno expects that with the FIST, banks’ NPL ratio will decline by 0.63 to 0.71 percentage points. As of February this year, gross NPL ratio was at 4.05 percent, up from January’s 3.70 percent, based on BSP data. The surge in NPLs reflect loss of household income due to the long lockdown and delay in reopening the economy.

Diokno also said soured assets incurred by banks could decline by at least P152 billion or 30 percent of the current P508.74 billion NPAs under because of the FIST law.

The BSP and banking industry have pushed for the FIST law as a safetynet for banks overburdened by NPAs because of the pandemic. Banks’ disposal of NPAs to asset management companies that specialize in the resolution of distressed assets will unburden the financial system since these asset management companies will have perks such as tax exemptions and reduced registration and transfer fees on certain transactions.