BSP allows foreign banks to lend more for infrastructure

MANILA, Philippines — Foreign banks have been given one more year to extend more loans to crucial infrastructure projects under the Duterte administration’s massive infrastructure program.

This after the Bangko Sentral ng Pilipinas (BSP) has extended the transitory period allowing foreign bank branches to use twice the level of net worth as basis for determining the single borrower’s limit (SBL) unti Dec. 31 this year.

 “The extended transitory period will also provide the foreign bank branches with ample time to re-assess their credit exposures and implement measures to ensure compliance with the SBL regulations even with the reduced base amount starting Jan. 1, 2021,” the central bank said in a statement.

A total of 12 more foreign banks established branches in the country after the approved of Republic Act 10641 or “An act allowing the full entry of foreign banks in the Philippines.” This brought to 29 the number of foreign banks operating in the country.

The SBL intends 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.

Under Section 5 of the new law that amended RA 7721, the SBL of a foreign bank branch should be aligned with that of a domestic bank. The SBL is currently at 25 percent of a bank’s networth.

The new law amended the regulatory capital composition of a foreign bank branch, and now excludes “net due to head office/branches/agencies abroad” account to align with the minimum capital requirement for domestic banks of the same category.

The said account previously formed part of adjusted capital where prudential and regulatory limits, including the SBL, are anchored.

The Duterte administration has earmarked as much as P9 trillion to complete major projects as part of the country’s massive infrastructure.

The central bank shelved the additional 25 percent cap on lending for single borrowers undertaking public private partnership (PPP) projects in December 2106. It was introduced in 2010 and was extended once or until end 2016.

The BSP decided to shelve the additional SBL window after taking into consideration the significant systemic risks from credit risk concentration if the regulatory relief is further prolonged.

In April 2018, the regulator provided entities created as vehicles to implement major projects or special purpose entities (SPEs) with their own SBL in support of the government’s BBB program.