BSP to tighten rules on loan exposure

The Bangko Sentral ng Pilipinas (BSP) plans to reduce the maximum permitted exposure of commercial banks to a single borrower as part of its measures to strengthen the banking system and prevent bank failures, a senior bank official said.

The bank also plans to revise its definition of a single borrower to prevent loan defaults arising from a company’s affiliate groups.

"There are discussions on whether we should define a single corporate borrower as just the company or the parent company," Alberto Reyes, BSP deputy governor, told reporters.

At present, a corporation is treated as a separate borrower from its affiliates and subsidiaries.

The central bank wants to limit a bank’s exposure to a single borrower, whether an individual or corporation, to 15 percent of its capital from the current 25 percent.

Reyes said draft circulars on the new cap on a single borrower, insider lending, and unsound banking practices had been prepared.

The central bank plans to tighten the ceiling on lending to directors, officers, shareholders and related interests from the current 15 percent of a bank’s unimpaired capital, he said.

Such moves are seen as an aftermath of the collapse of thrift bank Unitrust Development Bank.

Reyes said they hope to come out within the first quarter of the year with new regulations after consultations with the banking sector. They will also conduct on-site reviews on bank premises to see how they are implementing the regulations affecting money laundering.

Recently, they issued a circular on anti-money laundering measures. They urged banks to fashion detection schemes and best practices in determining and identifying laundering activities based on their respective operational activities.

The BSP is also considering a circular that will expand the coverage of DOSRI loans. At present, DOSRI only applies to directors, officers, shareholders and "related matters."

"There are proposals that the so-called related matters might include relatives of bank directors and shareholders which is equivalent to the director’s or the shareholder’s total deposits," BSP officials said.