ADB sees tighter SBL rule boosting bond issuance

MANILA, Philippines - Further tightening the single borrower limit (SBL) rule could help boost bond issuances especially for financing infrastructure projects, the Asian Development Bank (ADB) said.

“Revisiting the banks’ single-borrower limit could help increase the use of bond financing and contribute to financial stability,” the bank said in its Local Currency Bond and Infrastructure Finance in ASEAN+3 report.

“As long as the large Philippine conglomerates have access to ample inexpensive bank funding, they have little incentive to seek true project finance,” the report said.

This means that having a more “prudent” SBL may encourage conglomerates to tap bond markets for infrastructure projects and free up part of their borrowing capacity for other purposes.

The Bangko Sentral ng Pilipinas in 2004 mandated an SBL of 25 percent of a bank’s net capital to ensure there are no excessive exposure to a certain borrower or a group.

An additional 25-percent SBL has already been approved in December 2010 for firms engaging in public-private partnership (PPP) projects, while another 15-percent SBL was granted to oil companies as their business was deemed “vital to national interest.”

“The overly generous single-borrower limit has the effect of increasing reliance on bank financing, in direct contrast to the spare tire objective underlying bond market development throughout Asia,” the report said.

The ADB explained a major risk in the current regulatory environment is that the domestic banking sector may easily be exposed to large corporations.