BSP wants banks weaned off PPP funding deals

Privately funded big ticket infrastructure projects should be weaned off normal bank loans for funding to reduce the concentration of risks in the banking sector, according to the country’s top banking regulator.

This comes amid pressure for proponents of public-private partnerships (PPP) to find ways to pay the unprecedented and growing cost of projects solicited by the Aquino administration.

While local banks continue to grow, financial institutions may be hard pressed to finance projects on their own, given regulatory caps on lenders’ exposure to individual firms.

“The single borrowers’ limit (SBL), which is a common global standard, is an important prudential rule that prevents dangerous credit risk concentrations that can trigger financial instability,” Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said this week.

“We should be very careful about weakening it,” he told reporters in an email.

Regulators in 2012 relaxed banks’ SBL, which mandates that banks’ exposure to any single company or group of companies to 25 percent of their net worth. This was done to allow banks to lend more cash to companies participating in PPPs, which are the cornerstone of the Aquino administration’s economic agenda.

The relaxed rules lapse in 2016, which would force companies to look for other ways to pay for PPPs, the biggest of which—involving development of a 47-kilometer highway linking Metro Manila to Laguna de Bay—costs an estimated P123 billion.

The government wants to roll out 22 PPP projects worth P518.9 billion. Nine PPP projects worth P135.36 billion have already been awarded awarded.

Tetangco said project proponents should look for “alternative” modes of financing, noting that turning to capital markets was the “normal source of long-term financing.”

“Foreign direct investment also can play a very useful role,” Tetangco said. One reprieve for PPP contract winners was the fact that local banks continue to bolster their capital bases, effectively expanding their SBLs.

Lenders should also turn to credit risk transfer mechanisms such as guarantees that can also be tapped to manage SBL issues. Big loans may also be syndicated by several creditors at a time.