BSP seen tightening bank lending to big groups

The Bangko Sentral ng Pilipinas (BSP) is preparing a new circular that could tighten a bank’s loan exposure to conglomerates, a move seen to address concerns on over-concentration that may in turn give rise to systemic risks, banking sources said.

The proposed reform is also seen to be a clarification of the existing single borrower’s limit (SBL), which caps the total amount of loans, credit accommodations and guarantees that may be extended by a bank to any person, partnership, association, corporation or other entity to 25 percent of the bank’s net worth.

Several bankers told the Inquirer that this could tighten the amount that banks could lend to conglomerates because old parameters were under review.

One banker who had read the proposed circular said the BSP wanted to widen the coverage of what constituted exposure to a single conglomerate. This could mean that the maximum allotment for the same group would decline.

“The type of things that they want to include in the limit is broader, and it includes other stuff like derivatives,” the source said.

The baseline of capital at which the exposure to big groups will also be tweaked.

“Now it’s a percentage of your total capital. The idea is to focus on just a percentage of your total capital so it’s not all of your capital,” the banker said.

At present, banking regulators divide capital classes into tier 1 or core capital, tier 2 or supplementary capital and total capital which combines all classes of capital.

“They are debating where to set the limit. But anything else less than the total (capital) will reduce the base, so however way you cut it, lending will be smaller,” the source said.

The move seems in line with the International Monetary Fund’s suggestion to amend the SBL and the definition of “large exposures” so that both apply on a solo and consolidated basis, include all on-and off-balance sheet exposures, and use the same definition of capital.

“As a bank we don’t have an issue on them limiting it. We’re just worried about the clients and if they are used to relying on local banks, they will be forced to go to foreign banks,” said one local banker.

Another local banker has a more sanguine view of the proposed circular: “The clarification on SBL rules will enable consistent application of SBL rules across the industry.”

The proposal is also seen to be an effective consolidation of a bank’s exposure to conglomerates, thereby counting SBL as “one for all” even if these are distinct entities with individual businesses, said the official of one big conglomerate.

“Before, every bank has its way of computing (SBL). For some, if they will not lend to the ultimate holding company, they can lend separately for every company. We are hearing that these will be consolidated,” the official said.