State-owned Development Bank of the Philippines (DBP) must provide strong justification for its appeal to extend regulatory relief, according to a senior Bangko Sentral ng Pilipinas (BSP) official.

Speaking to reporters on the sidelines of a two-day media information session in Baguio City, BSP Deputy Governor Chuchi G. Fonacier said the central bank is open to considering DBP’s request, but only if the bank provides a reasonable justification.

"The openness to considering it [the extension] is there, of course, because they can submit a [request], for as long as they should really justify it,” Fonacier said, noting the need for a “very strong justification.”

DBP President and CEO Michael O. de Jesus earlier stated that the bank will seek an extension of the regulatory relief "for comfort," while Land Bank of the Philippines (Landbank) President and CEO Lynette V. Ortiz said the state-run bank no longer needs it.

The International Monetary Fund (IMF) recently noted the importance of DBP and Landbank exiting regulatory relief to promote a level playing field.

Fonacier agreed with this point, but stressed that regulatory relief is not a lifetime reprieve; "it's time-bound." This, she argued, is why granting relief to government-owned banks must be justified.

"Now what they’re saying is once they request for more time, that’s where we go in to assess if it’s justified to extend," Fonacier said.

She explained that prudential banking is the central bank's primary consideration when reviewing an appeal. If operations are not prudent, "it's no longer safe," she noted.

In addition to prudence, the BSP will assess the banks' capital adequacy, loan portfolio performance, non-performing loan (NPL) ratio, risk exposures, and other factors.

Addressing concerns about potential moral hazard if DBP is granted an extension, Fonacier emphasized the crucial role of assessment before any decision is made.

She argued that factors outside the control of DBP and Landbank, such as industry conditions, can influence their situation.

If appeals are justified, Fonacier said the central bank considers them. "So there are many things to consider, but, of course, we guard against moral hazards," she said.

De Jesus said the regulatory relief DBP receives from the BSP is renewed annually, unlike Landbank's, which extends for three to four years.

Fonacier explained that the agreement "also depends on the condition and the factors" influencing the banks.

"Landbank’s case is different, DBP’s case is different, that’s why we can’t compare them, because to begin with, their size is different. It’s different from DBP, their trust is different," Fonacier said.

"We really look at it on a per institution basis, but also we need to take a look at what is the impact on the entire system, because if it’s no longer resulting in a level playing field, then there's something there," she added.