BSP urges 'least burdensome' schemes on bank loan payments after grace period

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Metro Manila (CNN Philippines, May 21) – The Bangko Sentral ng Pilipinas has told banks to adopt policies that will not leave borrowers suddenly scrambling for funds when they receive their bills with accumulated loan dues after months under lockdown.

BSP Governor Benjamin Diokno asked banks to fulfill their "patriotic duty" and go easy on collecting overdue loans once the grace period is lifted at the end of the enhanced community quarantine.

"While interest accrued during the mandatory grace period under the ECQ and MECQ (modified ECQ) will still be collected in lump sum on the new due date or on a staggered basis over the remaining term of the loan, we expect BSP-supervised financial institutions to provide and communicate the least burdensome payment options to their clients," Diokno said in an online press briefing Thursday.

A fresh 30-day extension for credit card and other loan payments has taken effect for all bills falling due this month, with the central bank insisting that the modified ECQ in Metro Manila and select provinces had the same effect as the typical ECQ, which has stretched for over two months.

During the period, loans due since mid-March can be settled until June without incurring additional interest and other charges, as provided under the Bayanihan to Heal as One Act.

Banking system sound

The BSP chief also assured that the banks face "no immediate threat" of fiscal woes should some of their borrowers default on their obligations.

There are ₱246 billion non-performing loans, or NPL, as of end-March – representing 2.21 percent of the more than ₱11 trillion credit lines granted by all banks in the country, according to central bank data. This refers to the debts that have not been settled 30 days or longer past due date. The ratio was at 2.06 percent in March 2019.

"Over time, we have prepared our banking system well so there's no immediate threat to the banking system on the NPL. But we don't know the extent of this pandemic," the BSP official said.

Diokno said recent stress tests that assumed bigger default ratios "could have an impact on some institutions," but assured that the local banking system will remain sound because it has ample buffers.

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Still, Diokno said the BSP is backing a bill in Congress called the Financial Institutions Strategic Transfer Act, which will allow banks to sell problem loans to a separate entity in order to clean up their sheets. Such separate entities may be asset management companies, either state-owned or privately run.

"When that happens, then you clear up the money that the banks can lend out, you improve the financial viability or situation of the banks," he said. Firms that will buy out these loans may be given some tax breaks and other perks to make it enticing to take on the risk of collecting the problem loans.

"I think we have done enough at this time," he added, pointing out banks have turned frugal. "We're very confident this will not be as bad as what happened in the Asian Financial Crisis, because at that time we were really unprepared."

This measure is pending before the House of Representatives.