BSP tightens rules on salary loans

The central bank has further tightened rules on salary loans, this time emphasizing the need for minimum credit standards that scrutinize borrowers’ future income.

Guidelines released by the Bangko Sentral ng Pilipinas (BSP) this week also set a prescribed maturity for salary loans.

The move was in line with the BSP’s ongoing efforts to pinpoint expected sources of weakness in the financial sector and craft rules to ensure stability.

“[The new rules] aim to upgrade credit standards and policies for this type of credit accommodation,  and promote strict adherence to regulations on consumer protection,” the BSP said in a statement.

Under the new guidelines, banks and non-stock savings and loan associations (NSSLAs) are required to adopt credit granting standards and policies specific to salary-based general-purpose consumption loans.

These internal rules should cover comprehensive assessments of creditworthiness, the determination of individual borrowing capacity, and the setting of limits on loan terms.

The BSP likewise set the original loan maturity for this loan at a maximum of three years but may be extended under meritorious cases, provided that, in no case shall maturity exceed five years.

In June 2014, the BSP started its closer supervision over salary loans by enhancing reportorial requirements for banks and other financial institutions.

The new rules issued this week are an extension of last year’s move.

The BSP said salary loans would now be renamed and redefined primarily to emphasize the nature and purpose of the said loans.–Paolo G. Montecillo