“Congress should be cautious not to unduly weaken them,” BSP Governor Benjamin Diokno said in response to queries on whether the central bank supports further loan payment moratorium under the Bayanihan To Heal as One Act
The STAR/Mong Pintolo, file
BSP cool to further loan payment extensions under Bayanihan Act
Prinz Magtulis (Philstar.com) - June 1, 2020 - 1:21pm

MANILA, Philippines —The Bangko Sentral ng PIlipinas (BSP) has indicated apprehensions to a further postponement in loan payments beyond this month once Congress decides to extend President Duterte’s emergency powers during the pandemic.

“The strong and well-capitalized banking industry is one of the pillars of strength of the Philippine economy going into this once-in-a-lifetime health and economic crises,” BSP Governor Benjamin Diokno told reporters in a Viber message.

“Congress should be cautious not to unduly weaken them,” he added.

Diokno made the statement in response to Philstar.com’s query on whether the central bank supports plans to extend provisions under Republic Act 11469 that defer payment schedules for loans falling due during the quarantine period. When prodded for details by other reporters, Diokno added there are "many proposals" in the legislature "some well thought out; others not."

Legislators are poised to extend RA 11469 or the Bayanihan To Heal As One law, enacted in March 24, by another 3 months from its scheduled termination on June 24. The government is supportive of the plan, which would also allow President Duterte to reallocate budgets to coronavirus response without Congress approval.

While Diokno has reiterated that the banking sector is healthy, his warnings to legislators show how the pandemic is also causing financial strain in banks that draw part of their liquidity from loan payments.

This matters especially as the Duterte government is relying heavily on lenders to extend financial assistance to battered businesses, while the administration shells out taxpayer’s money for projects to the poor disadvantaged by the lingering outbreak and lockdowns.

BDO hikes loan loss buffers

That said, banks appear to be in stable footing for now and gearing for a long battle against unpaid loans. In a disclosure to the local bourse on Monday, Sy-led BDO Unibank Inc. said it has set aside an additional P20 billion “in anticipation of the expected disruptive economic impact” of the pandemic.

The amount would add to the initial P2.1 billion “upfront provisions” in the first quarter, meant to shield the bank’s balance sheet against potential losses from unpaid loans. BDO is the country’s largest bank in asset terms.

“The bank is expecting delinquencies to increase this year with the disruption in business activities, tightness in corporate liquidity, lower consumption levels and contraction in GDP (gross domestic product) by as much as 3.4% based on government estimates,” BDO said. 

“BDO’s balance sheet remains strong, with capital ratios remaining comfortably above regulatory levels despite higher provisions,” it added.

Apart from RA 11469, legislators are also on deliberating on the Financial Institutions Strategic Transfer bill that will establish a separate entity to absorb bad loans from banks so as not to tarnish their balance sheet. There is also the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) measure to provide wider loan guarantees to small firms. Diokno said BSP supports both FIST and GUIDE bills.

“Moving forward, Philippine banks will play a pivotal role in the post-coronavirus recovery process,” he said.

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