Banks told to implement debt reprieve

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has directed banks and other financial institutions to immediately comply with the provisions of a new law including the 60-day reprieve on loan payments amid the coronavirus disease 2019 or COVID-19 pandemic.

BSP Governor Benjamin Diokno said  the provision requires all covered institutions to implement a mandatory 60-day grace period to all existing, current, and outstanding loans falling due on or before Dec. 31 this year.

“The mandatory one-time 60-day grace period shall apply to each loan of individuals and entities with multiple loans,” Diokno said in a memorandum issuedFriday.

Diokno said BSP-supervised financial institutions should not charge or apply interest  on interest, penalties, fees or other charges during the mandatory one-time 60-day grace period to future payments or amortizations of the borrowers.

“The are likewise prohibited from requiring their clients to waive the application of the provisions of Bayanihan 2. No waiver previously executed by borrowers covering payments falling due until Dec. 31 shall be valid,” the BSP chief said.

Diokno said the accrued interest for the one-time 60-day grace period may be paid by the borrower on staggered basis until the end of the year.

Borrowers, however, may opt to pay the accrued interest in full on the new due date.

Diokno said parties could agree to a grace period longer than 60 days or for the payment of accrued interest on staggered basis beyond the end of the year.

Cezar Consing, president of the Bankers Association of the Philippines (BAP), said the country’s banking industry is strong enough to provide a 60-day reprieve on loan payments as provided for by Bayanihan 2.

He said Philippine banks would continue to extend support mechanisms to various sectors negatively impacted by the global health crisis under Republic Act 11494 or Bayanihan to Recover as One Act (Bayanihan 2).

Consing, who is also president and chief executive officer of Ayala-led Bank of the Philippine Islands, said one support mechanism for various sectors negatively impacted by the global health crisis is via a 60-day grace period on loan payments.

“Only a strong banking system – which is fortunately what we have – can play such a role,” Consing said.

Latest data from the BSP showed total assets of Philippine banks increased by 8.4 percent to P19.07 trillion in end June this year from P17.59 trillion in  the same period last year.

Philippine banks have been sacrificing higher earnings by raising their provision for soured loans amid the expected rise in defaults due to the COVID-19 pandemic. The net income of the industry slumped by 29 percent to P86.05 billion in the first half from P110.97 billion in the same period last year.

The industry gross non-performing loans (NPLs) ratio picked up for the seventh straight month to hit its highest level in almost six years at 2.67 percent in July. Provision for loan losses surged 59.1 percent to P321.85 billion in July from P202.22 billion last year

A survey conducted by the BSP showed the industry’s NPL ratio is expected to almost double to 4.6 percent in end-December from 2.4 percent in March due to the impact of the pandemic

The NPL ratio of Philippine banks ballooned to 18.6 percent in 2001 from a range of three percent to 3.4 percent in the first half of 1997 during the Asian financial crisis, but improved to 2.2 percent from 8.6 percent during the global financial crisis in 2008.