MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has increased the single borrower’s limit (SBL) to 30 percent from the current 25 percent to allow banks to lend more to borrowers affected by measures imposed to prevent the rapid spread of coronavirus disease 2019 (COVID-19).
BSP Deputy Governor Chuchi Fonacier said the increase in the SBL is part of a set of temporary measures aimed at assisting BSP-supervised financial institutions in focusing their resources on the continuous delivery of financial services.
Fonacier said the temporary increase in the SBL would be in place for six months as part of additional relief for banks to help them survive this extraordinary situation and support their subsequent recovery efforts.
The SBL prevents an overconcentration of credit risk, and imposes a ceiling on the amount of loans, credit accommodations and guarantees which a bank or financial institution can extend to a single borrower or its related entities.
Last month, the central bank gave foreign banks one more year or until the end of December this year to extend more loans to crucial infrastructure projects under the Duterte administration’s Build Build Build program.
The extended transitory period provides foreign bank branches with ample time to re-assess their credit exposures and implement measures to ensure compliance with the SBL regulations even with the reduced base amount starting January next year.
Under Section 5 of the new law that amended Republic Act 7721, the SBL of a foreign bank branch should be aligned with that of a domestic bank or at 25 percent of a bank’s networth.
However, under RA 10641 or an Act allowing the fulle entry of foreign banks in the Philippines, the regulatory capital composition of a foreign bank branch, and now excludes “net due to head office/ branches/ agencies abroad” account to align with the minimum capital requirement for domestic banks of the same category.
The said account previously formed part of adjusted capital where prudential and regulatory limits, including the SBL, are anchored.
It would be recalled the central bank shelved the additional 25 percent cap on lending for single borrowers undertaking public private partnership (PPP) projects in December 2106. It was introduced in 2010 and was extended once or until end 2016.
The BSP decided to shelve the additional SBL window after taking into consideration the significant systemic risks from credit risk concentration if the regulatory relief is further prolonged.
In April 2018, the regulator provided entities created as vehicles to implement major projects or special purpose entities (SPEs) with their own SBL in support of the government’s BBB program.
Fonacier said various measures including the imposition of a month-long enhanced community quarantine in Luzon, together with heightened health and safety risks are expected to affect the ability of banks to render financial services to the general public.
She added the BSP’s Monetary Board also agreed to relax the maximum penalty that may be imposed for reserve deficiencies.
“The maximum penalty that may be imposed by the BSP for reserve deficiencies shall be the overnight lending facility rate plus 50 basis points. Provided, that the maximum reserve deficiency of BSP supervised financial institution shall be 200 basis points above the reserve requirement,” she said.
Under Memorandum Order 2020 – 011, other additional operational relief includes relaxation of the notification requirements related to changes in banking hours, the temporary closure of bank branches as well as branch-lite units, and the regulations governing the submission of reports and other documents to the central bank’s Financial Supervision Sector.
The regulator also granted a two-month extension in the period of compliance with BSP supervisory requirements.