BSP increases ceiling on borrowings of small banks

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has relaxed the single borrower’s limit (SBL) related to interbank exposures of small banks as part of the government’s efforts to promote comprehensive rural development by making needed credit available and readily accessible in the rural areas not being served by bigger banks.

The BSP approved amendments to the regulations on SBL related to interbank exposure of banks wherein loans and credit accommodations, including deposits maintained by a bank with another bank would now be subject to the SBL of 25 percent of the lending or depositing bank’s net worth of P100 million or whichever is higher.

The central bank said the new ceiling of P100 million would benefit banks with net worth of less than P400 million since banks with a higher net worth would already be covered by the 25 percent limit.

“These banks, especially those located in far flung municipalities, need to deposit sufficient funds in the nearest banks to be able to avail of services such as deposit pick-up and delivery, and for security purposes,” the BSP added.

The SBL is determined in relation to the lending bank’s net worth, small banks with limited capitalization like some rural banks, cooperative banks, and thrift banks faced difficulties in complying with the limit particularly with respect to their interbank deposits.

Prior to the amended regulation, loans and other credit accommodations including deposits maintained by a bank with another bank were subject to the fixed SBL of 25 percent of the net worth of the lending or depositing bank.

The BSP added that small banks that play an important role in the government’s efforts to promote comprehensive rural development are expected to benefit from the amended SBL regulation.

“These banks have deposits and other exposures with other banks which are necessary in their day-to-day operations but which may be considered large as a percentage of their respective net worth. Thus, the Monetary Board deems it appropriate to give some leniency to small banks with respect to the SBL on their interbank exposures,” the central bank stated.

However, the BSP said lending or depositing banks should exercise proper due diligence in selecting a depository bank as part of its overall risk management system and processes.

It added that lending or depositing banks should also formulate appropriate policies to address the corresponding risks involved in the transactions.

The SBL is a prudential measure imposed on banks to prevent undue credit concentration or excessive credit exposures may cause significnt losses to a bank in case the borrowers default on their obligations.

Latest data from the central bank showed that the total number of banks operating in the Philippines was reduced by 33 to 746 in the first quarter of the year from 779 in the same quarter last year as the bank regulator stepped up its campaign against problematic banks while major players in the banking industry continued to consolidate.

Data showed that the number of universal and commercial banks was steady at 38 while the number of thrift banks was also unchanged at 73.

However, the number of rural banks decreased to 635 in the first three months of the year compared to 667 in the same period last year and 647 as of end-December due primarily to the closure of weaker banks.

The BSP reported that the number of branches of universal and commercial banks, thrift banks, and rural banks increased by 240 to 8,124 in the first quarter of the year from 7,884 in the same period in last year.