BSP issues new guidelines on monitoring salary loans

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) has further tightened the monitoring of salary loans as it expanded the coverage for this type of credit accommodation.

The central bank issued yesterday the new guidelines on the monitoring of salary loans, further enhancing the initial regulations laid down under Circular 837 in June last year.

“In line with BSP’s continuing efforts to strengthen the monitoring of salary loans, it has recently issued new guidelines that aim to upgrade credit standards and policies for this type of credit accommodation, and promote strict adherence to regulations on consumer protection,” the BSP said.

Under the new guidelines, the BSP said salary loans had been renamed and redefined primarily to emphasize the nature and purpose of the said loans. It would now be called Salary-Based General-Purpose Consumption Loans.

These loans, the BSP explained, would now refer to “unsecured loans for a broad range of consumption purposes, granted to individuals mainly on the basis of regular salary, pension or other fixed compensation, where repayment would come from such future cash flows, either through salary deductions, debits from the borrower’s deposit account, mobile payments, pay-through collections, over-the-counter payments or other type of payment arrangement agreed upon by the borrower and lender.”

Likewise, the bank regulator added the definition also now covers credit accommodations for education, hospitalization, emergency, travel, household and other personal consumption needs.

The BSP clarified, however, the salary-based general-purpose consumption loans would not include credit cards, motor vehicles and other personal loans covered under other existing BSP regulations.

Under the new guidelines, the central bank said banks and non-stock savings and loan associations (NSSLAs) are required to adopt credit granting standards and policies specific to salary-based general-purpose consumption loans.

The standards, it said, would cover comprehensive assessment of creditworthiness, determination of individual borrowing capacity, setting of limit on loan term, and requirements for loan “takeout”.

The BSP set the original loan maturity for this loan at a maximum of three years but may be extended under meritorious cases, provided that, in no case shall maturity exceed five years.

Banks and NSSLAs are given six months from the effectivity of the guidelines to adopt or amend their policies, procedures and credit risk strategy on salary-based general-purpose consumption loans to comply with the guidelines.

Moreover, banks and NSSLAs should start adopting the revised reporting templates starting with the reporting period ending September this year.

Latest data from the BSP showed consumer loans including real estate, consumer, credit card, and salary loans jumped 27 percent to P932.78 billion from January to March this year or P197.68 billion higher compared to P735.1 billion in the same period last year.

Real estate loans went up 25.8 percent to P411.44 billion in the first quarter from P326.92 billion in the same period last year, while auto loans increased 25.8 percent to P244.61 billion from P194.37 billion.