BSP tightens watch on SLAs

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has tightened its watch on savings and loan associations in what it said is part of enhancements made on supervising credit-granting entities.

“It shall be the responsibility of the board of trustees of NSSLAs (non-stock savings and loan associations) to formulate written policies on the extension of credit,” BSP Circular 789 released yesterday said.

“Well-defined lending policies and sound credit risk management practices are essential if NSSLAs are to perform their lending function effectively and minimize the risk inherent in any extension of credit,” it added.

NSSLAs are non-bank financial institutions where BSP still has oversight functions. Unlike banks though, they engage in the business of accepting deposits and extending credit solely only among and for its members.

BSP Deputy Governor Nestor Espenilla Jr., in a text message, said the move is part of a “structural reform agenda” that covers all BSP-supervised entities in a bid to thwart any risks associated with excessive credit in the financial system.

“As you may have noticed, we keep on enhancing the supervisory system across the board,” he said.

Under the circular, NSSLAs were ordered to establish “risk asset review system” in order to adequately respond and manage the quality of their loan portfolios. Books need to be reviewed periodically, it said, results of which will have to be submitted to the Board of Trustees.

Loans granted should also be grouped as either “unclassified” or “classified” depending on the loan amount and borrower’s capacity to pay. The latter group will also be broken down to “loans especially mentioned,” “substandard,” “doubtful” and “loss.”

Allowances or provisions were also ordered to be set aside to cover for potential losses in cases where loans remained unpaid for a month, the order stated.

Should the borrower finds it difficult to pay, NSSLAs were given the “flexibility” to restructure loans where terms and conditions, including payment schemes, will be renegotiated. This, however, should be justified.