BSP raises single borrower’s limit to 25%

The Bangko Sentral ng Pilipinas (BSP) has approved a further relaxation in the banking sector’s single borrower’s limit (SBL), increasing the ceiling from 20 percent to 25 percent of a bank’s net worth.

The Monetary Board of the BSP approved the new circular that would relax banks’ credit exposure limits to a single borrower while tightening other provisions along the parameters of international best practice.

Under the circular, the BSP will set the basis for determining compliance to the SBL on the total credit commitment of the bank to or on behalf of the borrower.

For the purposes of the new circular, BSP Deputy Governor Alberto Reyes said the definition of total credit commitment had been expanded to include outstanding loans and other credit accommodations, deferred letters of credit less margin deposits and guarantees.

Reyes said total credit commitment would be reckoned on credit risk-weighted basis consistent with existing regulations.

He said the total amount of loans could be increased by another 10 percent of the bank’s net worth only if the additional liabilities are secured.

Reyes said the BSP would also combine and subject to one SBL the liability of the individual and the corporations where he/she owns majority interest.

Loans, other credit accommodations, deposits and guarantees by a bank to any other bank or non-bank entity in the Philippines or abroad, would also be subject to SBL.

On the other hand, the new rules also allowed the increase in the ceiling for guarantees (foreign and domestic) from 50 percent of

the bank’s unimpaired capital and surplus to 100 percent of the bank’s qualifying capital.

Reyes said the increase in the guarantee ceiling is necessary since the rules expanded the definition of "guarantee" to include commitments such as suretyship and guaranty arrangements.

According to Reyes, the BSP also agreed to apply a higher SBL on wholesale lending activities of government banks to participating financial institutions if the loan program is funded by multilateral, international or local development agencies.

Wholesale lending, Reyes said, would be given an SBL of 35 percent of net worth while the end-user borrowers of the participating institution would be subject to the 25 percent SBL.

For non-compliance, the BSP increased the fine to one-tenth of one percent of the excess over the ceiling but not exceeding P30,000 a day for each violation from the day it was discovered to the day it was eliminated.

If the bank had total resources of less than P50 million, the BSP said the fine would be at P500 per day.