Flexible approach to bank loan restructuring urged

MANILA, Philippines — Banks and financial institutions are urged to take a more flexible approach in restructuring the loans of borrowers severely affected by the pandemic, according to the Bangko Sentral ng Pilipinas.

BSP Deputy Governor Chuchi Fonacier said the Monetary Board, through Resolution 1401, has approved the guidelines on the regulatory treatment of restructured loans for purposes of measuring expected credit losses.

“Loan modification should be targeted at providing sustainable support measures to creditworthy borrowers experiencing financial difficulty to help promote overall loan quality and contribute to broader economic recovery. In this respect, BSP-supervised financial institutions or BSFIs should establish prudent criteria in assessing and modifying the loan terms and conditions,” Fonacier said.

Fonacier stated in Memorandum 2021–056 that the guidelines on the regulatory treatment of restructured loans for purposes of measuring expected credit losses shall be effective until end-December next year.

“The classification of modified loans under Stage 1, 2, or 3 for purposes of determining the expected credit losses should be based on the assessment of the extent of financial difficulty of the borrowers and their ability to fully pay the loan based on the revised terms,” Fonacier said.

BSFIs have modified or changed the original terms and conditions of the loan agreements in response to the application of the mandatory grace period under Republic Act 11469 or the Bayanihan to Heal as One Act (Bayanihan 1) and RA 11494 or the Bayanihan to Recover as One Act (Bayanihan 2) and to grant relief to their borrowers who have been affected by the pandemic.

The modifications in the terms and conditions of the loan agreement include repayment deferrals or holidays, extension of loan terms, changes in the principal and or interest payments, interest rates, fees, charges, or collaterals, among others.

“The continuing uncertainty in the economic environment because of the COVID-19 health crisis has adversely affected the income, cashflows, and financial position of households and businesses. In this respect, the BSP expects BSFIs to grant relief measures to their borrowers to reduce their debt burden and ultimately contribute to economic recovery,” Fonacier said.

She explained the relief measures include, among others, modifying the terms and conditions of the loan agreements to reflect the change in the borrowers’ projected cash flows and improve the probability of full collection.

“The BSP is issuing this memorandum to provide guidance on the regulatory treatment of loans with terms and conditions that have been modified due to the impact of the pandemic, especially consumption loans, for purposes of measuring expected credit losses and classifying the accounts as non-performing,” she said.

The restructured loans of Philippine banks amounted to P334.62 billion in August, 3.2 times the P104.51 billion booked in the same month last year, translating to a restructured loan ratio of 3.07 percent.

Likewise, the past due loans referring to all types of loans left unsettled beyond payment date inched up by 2.1 percent to P579.6 billion from P567.88 billion for a past due ratio of 5.32 percent.

On the other hand, the industry’s non-performing loans surged by 61.3 percent to P491.93 billion from P305 billion, resulting in a 13-year high NPL ratio of 4.51 percent.