New policy won't lead to riskier loans - BSP

MANILA, Philippines -The Bangko Sentral ng Pilipinas (BSP) clarified yesterday that the changes to its reserve requirement policy won’t lead to riskier loans by banks.

In a text message to reporters, BSP Governor Amando M. Tetangco Jr. said surveys conducted by the central bank including the recent Senior Bank Loan Officers’ Survey showed that banks have not significantly altered their respective lending standards.

“I don’t believe banks will be drawn to that. Our surveys have shown that loan officers have not significantly altered their lending standards. This, together with sufficient liquidity in the system, should not lead to large lending to risky businesses,” he clarified.

The BSP chief was reacting to a report by New York-based Moody’s Investors Service that the central bank’s revised guidelines on the reserve requirement policy are seen as credit negative for banks operating in the Philippines.

Aside from resulting to lower interest yields, Moody’s claimed that the changes would also result in potential second-round effects on credit profiles if banks offset higher margin pressure by accepting more credit risk and relaxing their underwriting standards.

“This may involve increased lending to borrowers with poorer credit profiles, lending on an unsecured basis without sufficient credit mitigation, and lending at higher loan-to-collateral values,” Moody’s warned.

The additional credit exposures would boost the banks’ loan margins immediately but would also increase the banks’ risk profiles and eventually hurt their risk-adjusted profits.

For his part, Tetangco said the proposed changes to the reserve requirement policy that was announced as early as November last year was discussed with major players in the banking industry.

“The BSP took time to brief and consult with banks, including on what reserve requirement rate adjustment would bring about a neutral effect on liquidity as a result of the reserve requirement administration changed,” he added.

To cushion the impact, the central bank decided to slash the reserve requirement ratio by three percentage points to 18 percent starting April 6 from the current level of 21 percent to free up about P100 billion worth of funds to the financial system.