The Bangko Sentral ng Pilipinas (BSP) is proposing changes to the rules governing single borrower’s limit (SBL) in terms of minimum capital and credit exposure.
The BSP wants to amend SBL and the definition of capital “for purposes of determining compliance with various prudential limits and requirements.”
In the draft circular, credit exposure limits to SBL will have new definitions of net worth which refers to minimum required capital. The changes cover credit risk transfer, guarantees and credit derivatives.
The BSP said capital in SBL rules will be the same as unimpaired capital and surplus, combined capital accounts and net worth. The new definition includes unimpaired paid-in capital, paid-in surplus, retained earnings and undivided profits when determining minimum required capital.
The BSP wants to add to capital deposits for stock subscription as equity, and other capital instruments that are paid-in, with at least five years maturity, redeemable and can be converted to common shares or written off.
The draft circular, on the other hand, will deduct from capital treasury stock, unbooked allowance for probable losses, outstanding unsecured credit accommodations and DOSRI (directors, officers, stockholders and their related interests).
The BSP currently implements a higher SBL of 30 percent until end-December this year, part of credit-related regulatory relief measures for all BSP supervised financial institutions (BSFIs) hit by the COVID-19 health crisis.
Pre-pandemic, the SBL is 25 percent of a bank’s unimpaired 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 draft circular amending the definition of capital for SBL is currently being circulated among BSFIs for comments and feedback until November 12.
BSP Governor Benjamin E. Diokno said last month that they could extend the higher SBL beyond end-2021.
The BSP on March 31 last year, when the COVID-19 pandemic was at its early months, raised the SBL from 25 percent to 30 percent as an additional operational relief measures. So far, the higher SBL has been extended for a third time.