BSP sets separate SBL for crucial infra projects

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has revived the separate credit ceiling for crucial infrastructure projects to support the government’s Build Build Build program.

BSP Governor Nestor Espenilla Jr. said the central bank has amended its regulations to establish a separate single borrower’s limit (SBL) to entities created as vehicles to implement major projects or Special Purpose Entities (SPEs).

“Yes it is for separate entities,” he said.

The SBL is currently at 25 percent of a bank’s or quasi-bank’s net worth. It is intended to prevent 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.

The easing of the credit limit is in support of the government’s Build Build Build initiative wherein at least P8.4 trillion worth of infrastructure projects would be rolled out until 2022.

 “Such SPEs were given their own separate SBL in consideration of the independence they usually enjoy under project finance schemes. Under these schemes, SPEs are ring-fenced by appropriate legal structures, operational set up, and controls so that assets and cash flows of SPEs remain separate from those of their sponsors, shareholders, and other related parties,” the BSP said.

In December 2016, the BSP shelved the additional 25 percent cap on lending for single borrowers undertaking public private partnership (PPP) projects. The credit ceiling was introduced in 2010 and was extended once or until end 2016.

It added the BSP’s policy reform is premised on banks’ understanding of risks of such exposures.

“Lending to such dedicated SPEs shall be subject to certain conditions to ensure effective risk monitoring and management. It is also required that purposes of project finance loans be in line with the government’s priority programs and projects,” the central bank said.

Furthermore, the regulator said lenders should also ensure standard prudential controls, including pledges of borrowers’ shares, assignments of borrowers’ assets, revenues, cash waterfall accounts and project documents.

“To curb excessive credit risk-taking, banks or quasi banks must also take into account, their total project finance exposures in managing large exposures and credit risk concentrations,” it said.

According to the central bank, the prudential controls should also apply to credit extended by banks to their SPE subsidiaries and affiliates involved in project finance activities.

The central bank has also issued Circular 976 requiring banks to submit more granular reports on their real estate exposures including project finance loans starting June 30.

“This will aid the BSP in crafting more informed and calibrated policy decisions in areas that require careful supervisory action,” the BSP said.