BSP extends foreign banks’ exemption from prudential loan cap

Foreign banks wanting to lend aggressively to Philippine borrowers, whether in the public or private sectors, will be able to continue doing so until yearend, thanks to a decision by the Bangko Sentral ng Pilipinas (BSP) to allow these financial institutions to double their exposure to local entities for the time being.

In a statement, the central bank said its policymaking Monetary Board extended the transitory period allowing foreign bank branches to use twice the level of net worth as basis for determining their so-called single borrowers’ limit until Dec. 31, 2020.

“This will allow foreign bank branches existing prior to Republic Act No. 10641 to continue supporting the public sector’s initiatives under the Build, Build, Build program,” the BSP explained.

As a general rule, banks’ loans to single borrowing entities are capped to an equivalent of 25 percent of the lending financial institution’s unimpaired capital. This is meant to help ensure that banks are not overexposed to the risk of a large borrower defaulting on its loans.

To entice foreign banks to lend to Philippine borrowers, however, the monetary authority allowed them to enter the local loan market more aggressively within a specified transitory period.

“The extended transitory period will also provide the foreign bank branches with ample time to reassess their credit exposures and implement measures to ensure compliance with the single borrowers’ limit regulations even with the reduced base amount starting Jan. 1, 2021,” the central bank said.

RA 10641—An Act Allowing the Full Entry of Foreign Banks in the Philippines— amended the regulatory capital composition of a foreign bank branch.

The revised capital composition excludes “Net Due to Head Office/Branches/Agencies Abroad” account to align with the minimum capital requirement for domestic banks of the same category. This account previously formed part of adjusted capital where prudential and/or regulatory limits, including the single borrowers’ limit, are anchored.

Since the implementation of this law, the Monetary Board has already approved 12 foreign bank applications bringing the total number of foreign banks operating in the Philippines to 29. —Daxim L. Lucas INQ