BSP lowers risk weighting on CSF-backed MSME loans

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has eased the risk-based capital adequacy framework for banks to facilitate the increased flow of funds to micro, small and medium enterprises (MSME).

BSP Governor Nestor Espenilla Jr. has issued Circular 979 assigning a lower risk weight of 20 percent on performing loans to MSME to the extent guaranteed by a qualified credit surety fund (CSF) cooperative.

Existing regulations provide that a 75 percent risk weight will be applied to qualified MSME portfolio.

However, the Monetary Board of the BSP approved the amendments to the risk-based capital adequacy framework for banks to further support the growth of MSME.

“This policy intends to facilitate the increased flow of funds to MSME that will translate to the further growth of the sector and of the domestic economy,” the central bank said.

Espenilla said a qualified CSF cooperative refers to a cooperative that is organized consistent with the provisions of Republic Act 10744 or the Credit Surety Fund Cooperative Act of 2015 and its implementing rules and regulations.

The leverage ratio can be subsequently increased subject to review of the performance of the CSF cooperative, according to Espenilla.

“That said leverage ratio shall be subject to periodic review for progressive increase as warranted by the CSF cooperative’s performance but not to exceed five times the CSF cooperative’s restricted capital for surety,” he said.

The CSF was initiated by the BSP in 2008 for MSME that could not access bank credit due to lack of hard collaterals and credit history. The fund is created through the pooling of monetary contributions from cooperatives, non-government organizations, local government units and partner institutions.