BSP eases guarantee rule on credit card receivables

MANILA, Philippines - Credit card users who would want more time to pay their debts under renegotiated terms would no longer have to get guarantees to secure approval, according to a new circular by the Bangko Sentral ng Pilipinas (BSP).

The latest BSP circular amends Section X319 of the Manual Regulations for banks, deleting the word “restructuring” from those unsecured loans that need a co-maker if the principal borrower is seen not capable of paying his or her debts on time.

Unsecured loans are debts that do not require collateral such as personal and salary loans as well as credit card receivables. Restructuring happens when a bank agrees to renegotiate a loan’s terms and conditions with a borrower who is nearing default.

Renegotiation may involve the loan interest and/or maturity, depending on what will be agreed upon by both parties. A co-maker is a third party who should pay the debt in case of default by principal borrower.

BSP Deputy Governor Nestor Espenilla Jr. said the new circular was requested by banks themselves.

 “This circular was just issued because credit card companies said they are having problems, issues in collecting payments. They said they wanted to restructure debts, but their regional offices can’t because of the absence of a co-maker,” Espenilla told reporters.

 “So what happens is that they were telling borrowers that they cannot process the restructuring program because they do not have someone who will guarantee it,” he added.

Saying debt restructuring is a “business judgment,” Espenilla downplayed the possibility that the requirement’s removal may result into more defaults and thus, affect banks’ stability.

 “By allowing a reasonable restructuring, the probability of collection will actually improve, which will be both good for the creditor and the debtor,” he explained in a text message.

Philippine banks also have a “good credit policy” as proven their “manageable” non-performing loans (NPL) ratio, Espenilla said.

Patrick Cheng, president of Chamber of Thrift Banks, concurred, saying there is no risk of an asset bubble forming. An asset bubble is formed whenever there is excess demand for a particular commodity. What is feared is the bursting of such bubble should loans availed to pay for such commodities end up being unpaid.

 “Banks continue to be prudent. We continue to work closely with the BSP and a have a two-way dialogue with them,” Cheng said.

NPL of consumer loans— which include credit card receivables— related to banks’ total loan portfolio stood at 1.11 percent as of the first quarter from 1.32 percent same period last year. Non-performing credit card receivables ratio alone decreased to 0.23 percent from 0.29 percent.