The Bangko Sentral ng Pilipinas (BSP) has two new relief measures to incentivize banks to lend more and flexible in assessing new and restructured loans in consideration of borrowers who are still struggling with pandemic-related financial problems.

The two regulatory relief measures are on the treatment of restructured loans and the capital relief on the treatment of provisioning requirements.

BSP Governor Benjamin E. Diokno said these relief measures are expected to extend more financing to clients as well as improve loan collection by BSP supervised financial institutions (BSFIs).

“The BSP expects that the back-to-back relief measures will further boost bank’s efforts to assist their clients through the extension of appropriate financing arrangements,” said Diokno on Thursday, Nov. 25, in an online press chat.

With these new rules, the BSP is giving banks additional perks to grant new loans to borrowers. Diokno said that as the economy gradually reopens, sustained financing to households and productive enterprises “will be crucial to their recovery and resumption of operations under a post COVID-19 environment.”

For the prudential treatment of restructured loans which will be implemented until end 2022, Diokno said this rule basically instructs banks to “take a more flexible and systematic approach in modifying terms and conditions of loans of borrowers that are significantly affected by the pandemic.”

“Loan modifications should be targeted at providing sustainable support measures to creditworthy borrowers experiencing financial difficulty. In modifying loan terms and conditions (BSFIs) must base this on changes in the projected cash flows of their borrowers,” said Diokno. “Modifications on loan terms tailored to the borrower’s circumstances will not only increase probability of collection but would also generally result in the loan being classified as ‘performing.’”

In the meantime, the capital relief measure will ease the impact of provisioning on bank capital ratios. It “softens the impact of provisioning requirements for loans tagged as performing and under-performing on banks’ capital,” said Diokno.

The relief measure allows banks to add back to their capital the net increase in provisioning for loans tagged as performing or underperforming under the first measure. Banks normally provision for potential credit losses on loans, and these are charged to capital.

By adding back, the measure essentially provides banks with a mechanism to temporarily reverse impact of provisions on loans to creditworthy borrowers on their capital position, said the BSP. This new rule will apply beginning January 1, 2022 until end-2023.

As of end September, banks’ restructured loans amounted to P338.5 billion versus only P130.9 billion same period in 2020. Restructured loans to total loan portfolio went up to 3.1 percent from only 1.2 percent ratio same time last year.

Diokno noted that new loans released by big banks on a monthly basis “has been relatively stable ranging from six percent to eight percent of loans outstanding”. The big banks released P816.1 billion in new loans in September, about 8.1 percent of the industry’s total loan portfolio of P10 trillion.

“The recently issued twin relief measures reinforce the government’s national efforts aimed at supporting the country’s steady path towards balanced growth,” said Diokno.