SBL incentive for PPP deals lapses

Given a flurry of new foreign and multilateral lenders willing to finance infrastructure projects pursued through the public-private partnership (PPP) mode, the Bangko Sentral ng Pilipinas has no longer extended the availability of the additional 25-percent single borrowers’ limit (SBL) earlier dangled to banks and quasi-banks.

In a statement Tuesday, the BSP said this temporary regulatory relief was deemed by the Monetary Board, its highest policy-setting body, as no longer necessary as “there are sufficient feasible funding alternatives already available to PPP project proponents.”

As such, the incentive will lapse today following an extension for another three years of the relief first granted in 2010 and was initially supposed to end in 2013.

SBL is the ceiling on the amount of loans a bank may extend to a single borrower. It is set at 25 percent of a bank’s net worth.

Through the separate 25-percent SBL limit perk that the BSP offered during the past six years, a corporate borrower who has an outstanding loan with a bank equivalent to 25 percent of the latter’s net worth can secure more loans from the same bank up to an amount equivalent to another 25 percent of the creditor’s net worth, as long as the additional loan funded PPP projects.

“The decision of the Monetary Board to allow the additional SBL window to close takes into consideration the significant systemic risks from credit risk concentration if the regulatory relief is further prolonged,” the BSP said.

Financial stability

“The Monetary Board decision is thus firmly in line with the financial stability objectives of the BSP,” it added.

According to the BSP, “the Monetary Board also considered that the entry of new foreign banks into the country provides additional potential funding sources, in addition to syndicated loans that may be structured by existing banks,” adding that “loan syndication spreads the credit-risk exposure arising from big-ticket projects.”

To date, the BSP allowed nine Asian banks to fully operate in the country under Republic Act No. 10641.

Also, “PPP projects that are already operational can be refinanced through the issuance of project bonds in the domestic capital market to open new long-term funding for infrastructure and other similar projects,” the BSP said.

“Funding arrangements with multilateral organizations such as the World Bank, the Asian Development Bank, and the newly formed Asian Infrastructure Investment Bank, as well as with international development organizations like Japan International Cooperation Agency can also help fund PPP projects,” the BSP added.