The Bangko Sentral ng Pilipinas (BSP) is extending its prudential relief measure by relaxing the credit risk weight for loans to micro, small and medium enterprises (MSMEs) to ensure continued credit access while the economy is still recovering.

Based on BSP Memorandum No. M-2021-041, signed by BSP Deputy Governor Chuchi G. Fonacier on Sept. 23, the relief measure which reduced the capital treatment for exposures from 75 percent to 50 percent, will still be applied until June 30, 2023.

The regulatory capital treatment of exposures to MSMEs free up capital and enable banks to extend more credit to the MSME sector.

“The Monetary Board, in its Resolution No. 1378 (Setp. 16) approved the amendments to the BSP relief measure on the relaxation of the credit risk weight for loans MSMEs under the BSP’s Risk-Based Capital Adequacy Frameworks to encourage lending to MSMEs and ensure their continued access to financial services,” said Fonacier in the memo.

The BSP reduced to 50 percent from 75 percent the credit risk weight of MSME loans for diversified MSME portfolio with at least 500 borrowers over a number of industries, and 100 percent for non-diversified MSME portfolio.

The relief measure was first approved last April 28, 2020, during the height of the Covid-19 public health crisis. The World Health Organization first announced the global pandemic on March 11, 2020.

The BSP amended the memo again on Jan. 17 this year and extended until mid-2023. Fonacier said exposures to MSMEs are: exposures that meet the criteria of a qualified MSME portfolio; and current MSME exposures that do not qualify as a highly diversified MSME portfolio. These exposures are defined under the Basel III Risk-Based Capital Adequacy Framework and the Basel 1.5 Risk-Based Capital Adequacy Framework.

Fonacier said the provisions on the use of credit risk mitigation under the Manual of Regulations for banks and for non-banks as well as claims with eligible collateral or guarantees will continue to apply until June 30 next year.

In 2020, the BSP approved the prudential measures to assist MSMEs during the public health crisis, and to ensure recovery and sustainability of their businesses. MSMEs accounted for 99.5 percent of the total business establishments operating in the country.

The regulatory capital treatment of exposures to MSMEs include the temporary reduction in the credit risk weights of loans granted to MSMEs that are current in status, and assignment of a lower risk weight for MSME exposures that are covered by guarantees.

The BSP also assigned a zero percent risk weight for MSME loans that are covered by guarantees such as by the Philippine Guarantee Corporation, Agricultural Guarantee Fund Pool and the Agricultural Credit Policy Council.