BSP extends SBL limit of banks for oil firms

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has extended for another year an option for banks to lend more credit to oil companies to cover their importation needs.

Under Circular 803 dated July 5, the central bank said it is allowing lenders to exceed their single borrowers limit (SBL) whenever they lend to oil companies “provided that the additional loans...are granted to finance oil importation.”

SBL is a mechanism instituted to ensure that banks do not lend too much to a particular segment of the economy, on fears that should bad loans occur, their balance sheets will be badly hit.

As per the Manual of Regulations for Banks, lenders are allowed to grant loans or any type of credit to a particular individual or entity for as long as the amount does not exceed 25 percent of their net worth.

With the new circular, set to take effect 15 days after publication, lenders are allowed to breach their SBL by another 15 percent, at least for credit to fund oil importations. The leeway would last until March 2014.

The new rule will also be applicable to other lending institutions, the BSP said.

The new order was in fact an extension of the original two-year program that began on March 3, 2011 and expired on the same date this year. The BSP has said then that the incentive was meant to ensure adequate supply of oil during the time when world oil prices were spiking.

With increased exposure, banks were also told to ensure that possible adverse impact on their balance sheets is avoided.

“The credit risk concentration arising from total exposures to all oil companies shall be considered by the bank in its internal assessment of capital adequacy relative to its over-all risk profile and operating environment…,” the circular explained.

Borrowing oil companies, the central bank also said, should “qualify under credit underwriting standards of the lending bank.”

For his part, BSP Deputy Governor Nestor Espenilla Jr. said risks are limited since other financing avenues, such as the capital markets, are available for oil firms to raise necessary funding.

“Besides, this is just a modest one-year extension…, while alternative financing modalities are being put in place,” Espenilla said in a text message.