BSP amends rules governing bank lending

Cash flow, not collateral, will soon be the main factor that banks will consider when lending money to consumers and small businesses following a major change in rules approved by regulators this week.

In a statement, the Bangko Sentral ng Pilipinas (BSP) announced the amendments to rules governing credit-risk taking activities of banks and quasi banks, following the comprehensive policy review undertaken by the central bank.

“By focusing primarily on cash flow and ability to pay, the BSP is signaling that collateral should play only a supporting role in (determining) creditworthiness,” the regulator said on Monday.

The BSP said this regulatory “point of view” was expected to give banks more leeway to lend to customers who were creditworthy but might not have collateral, particularly real estate, which could restrict access to credit.

In securing loans, the BSP said it would cap the value of real estate mortgage as collateral at 60 percent. It said this maintains existing regulations applicable to universal and commercial banks.

As a result of these new rules, getting loans will become easier for borrowers who make enough money to make repayments but do not have the assets to put up as collateral.

The revised rules also favor small to medium enterprises, which would no longer be required to submit income tax returns or financial statements for the first three years of their operations.

Moreover, a borrower with outstanding loans not exceeding P3 billion would likewise be exempted from the same documentary requirements.

Another highlight of the new rules was that banks would be required to have well-defined limits for their credit exposures to mitigate “concentration risk,” or when too much of a lender’s portfolio is dedicated to a single borrower.

Large exposures to third parties of the bank and its subsidiaries will now be aggregated and compared with the group’s qualified capital, the BSP said.

“Banks are expected to generally observe a lower internal single borrower’s limit than the prescribed limit of 25 percent of the bank’s net worth as a matter of sound practice,” the BSP said.