BSP, banks nix bill on debt holiday

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) and the local banking industry are strongly opposing the mandated debt holiday of up to two years as the country’s banking sector is not spared from the impact of the global health crisis.

In a position paper submitted to the House of Representatives, BSP Governor Benjamin Diokno said Section 11 of House Bill 6815 or the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE) would be beneficial to borrowers.

The ARISE bill, formerly known as the Philippine Economic Stimulus Act (PESA), seeking a P1.3 trillion funding to help the economy survive and recover from the impact of the coronavirus disease 2019 or COVID-19 pandemic was passed on third and final reading by the House of Representatives on June 4 and has been forwarded to the Senate.

A provision of the proposed bill encourages banks, as well as lending and financing companies, to extend the principal payments on consumer and commercial loans due between March 16 and Dec. 31 by one year and could be extended by another period of one year.

In exchange, the banks and other non-bank financial institutions granting extension to principal loan payments would be entitled to regulatory reliefs, including non-inclusion in the banks’ reporting on non-performing loans (NPLs), as well as exemption from loan-loss provisioning, from the limits on real estate loans and related party transaction restrictions.

“Considering that the BSP has the authority to evaluate and decide on the subsidy of regulatory relief to the operations, situation and condition of availing financial institutions on a case-to-case basis, it would be more advantageous to the financial institutions if compliance with any one of the conditions would entitle them to regulatory relief from the BSP,” Diokno said.

The BSP chief said financial institutions should be allowed to determine the length of period extension that may be suitable to the circumstances of their borrowers.

Shortly after assuming as BSP governor, the former secretary of the Department of Budget and Management (DBM) said the banking sector is over-regulated with the extension of mandated credit under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009, as well as RA 6977 as amended by RA 8289 and RA 9501, otherwise known as the Magna Carta for SMEs.

Nestor Tan, president and chief executive officer of BDO Unibank, told The STAR banks continue to accommodate clients particularly borrowers affected by the COVID-19 pandemic.

“Banks will be definitely accommodating of clients. We understand the difficulties borrowers are going through due to this pandemic. It is not practical though to force one solution for all borrowers. Restructuring allows you to rework the terms according to the individual needs of clients,” Tan said.

BDO has beefed up its war chest against bad loans to a record P22.1 billion in anticipation of higher defaults due to the economic fallout from the pandemic.

For his part, East West Banking Corp. vice chairman and president Antonio Moncupa Jr. said loan deferrals and modifications programs to assist borrowers on their cashflows are best left to borrowers and their banks.

“This way, the best solution could be tailor fitted to the needs of the borrowers as the situations of borrowers are not necessarily the same.  Besides, banks are doing this already as they understand that it is to their interest that deserving borrowers be given assistance,” Moncupa said.

Cezar Consing, president and chief executive officer of Ayala-led Bank of the Philippine Islands, told The STAR the section in the ARISE bill which encourages banks to provide a one-year or more payment moratorium is not necessary.

“Banks are already prepared to reschedule or restructure loans on a case-to-case basis, under terms that make sense for the borrowers and the banks. A one size fits all approach could be inefficient,” Consing said.

Consing, who is also president of the Bankers Association of the Philippines, said the mandated one-year moratorium and absence of loan payments would cause liquidity problems and could threaten the financial position of many banks.

“Fortunately, the ARISE bill does not call for this,” Consing said.

Another bank president who requested anonymity said by encouraging banks to offer extension on principal loan payments would not compromise their liquidity position as they can opt not to roll over if they do not have deposits.

Banks were mandated by Republic Act 11469, otherwise known as the Bayanihan to Heal as One Act, to extend a grace period on all loan payments that fell due when Malacañang placed the entire Luzon under enhanced community quarantine to prevent further spread of the deadly disease.

With the shift to a looser general community quarantine, all principal and interest falling due from June 1 onwards are now due and demandable.

“The grace period provided by the Bayanihan Act gave borrowers much needed breathing space and postponed many loan defaults. But an increase in non-performing loans is inevitable given the economic carnage wrought by COVID-19,” Consing said.

Pia Roman-Tayag, managing director of the BSP’s Center for Learning and Inclusion Advocacy, said the grace period simply moved the payment due dates of existing loans and the right of lenders to collect principal and interest remain.

“This does not mean that the loan has been condoned or no longer needs to be paid. The consequence of the grace period is to temporarily stop the payment of loans for the duration of the grace period. The debt of the borrower remains,” Tayag clarified.

Tayag said that banks could not impose additional interest such as interest on interest as well as additional fees for non-payment of loans during the grace period.

Latest data from the central bank showed soured loans of Philippine banks went up by 18.3 percent to P252.64 billion as of end-April from P213.51 billion in the same month last year amid the sharp raise in past due as well as restructured loans due to pandemic.

As a result, the banking industry’s gross NPL ratio increased for the fourth straight month to 2.3 percent of total loans in end-April, compared to a year-ago level of 2.1 percent.

Past due loans referring to all types of loans left unsettled beyond payment date surged by 41 percent to P414.41 billion from P293.63 billion, while restructured loans increased by 20.2 percent to P47.5 billion from P39.52 billion.