BSP Encourages Banks to Have A Flexible Approach to Bank Loan Restructuring
The Banko Sentral ng Pilipinas (BSP) expressed that they are encouraging banks and financial institutions to have a more workable approach in reorganizing the bank loans of debtors that have been badly hit by the pandemic.
According to BSP Deputy Governor Chuchi Fonacier, guidelines on the regulatory treatment of reorganized bank loans to measure predicted credit losses have been approved by the monetary board through Resolution 1401.
Under Memorandum 2021–056, the regulatory treatment guidelines for re-aligned loans will be effective until the end of December next year.
Fonacier stated, “The classification of modified loans under Stage 1, 2, or 3 for purposes of determining the expected credit losses should be based on the assessment of the extent of financial difficulty of the borrowers and their ability to fully pay the loan based on the revised terms.”
In response to the petition for the mandatory moratorium under Republic Act 11469 (Bayanihan 1 Act) and RA 11494 (Bayanihan 2 Act) to convey relief to debtors that have been badly affected by the pandemic, the Bank Financial Institutions (BFI’s) have modified their terms and conditions of loan contracts.
The conversion in the terms and conditions of the bank loan agreement consists of repayment deferrals or holidays, an extension of loan terms, changes in the principal, and/or interest payments, interest rates, fees, charges, or collaterals, among others.
She noted, “The continuing uncertainty in the economic environment because of the COVID-19 health crisis has adversely affected the income, cashflows, and financial position of households and businesses. In this respect, BSP expects BSFIs to grant relief measures to their borrowers to reduce their debt burden and ultimately contribute to economic recovery.”
Fonacier stated that the changes in the terms and conditions of loans will be seen in the borrowers’ estimated cash flow and the probability of full payment completion.
Further, she noted, “BSP is issuing this memorandum to provide guidance on the regulatory treatment of loans with terms and conditions that have been modified due to the impact of the pandemic, especially consumption loans, for purposes of measuring expected credit losses and classifying the accounts as non-performing.”
In August, the restructured loans of the Philippines were ₱334.62 billion, 3.2 times higher than the same month last year, giving a reorganized loan proportion of 3.07%.
In addition, the past-due loans left unpaid beyond the due date increased by ₱579 billion from ₱567.88 billion.
On the contrary, the financial industry’s non-performing loans surged to ₱491.93 billion, resulting in a 13-year high non-performing loans (NPL) ratio.