Don’t weaken banking sector, Congress urged

The central bank on Monday urged Congress to refrain from passing legislation that would result in the weakening of the Philippine banking system, saying these financial institutions were poised to play a key role in the recovery of the country’s economy.

In a mobile phone message to reporters, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that there were several proposals currently being deliberated by lawmakers in the Lower House, adding that “some [are] well thought out, while others are not.”

One measure of particular concern to the banking system is the proposed extension of the law that granted President Duterte emergency powers to deal with the coronavirus pandemic. The current Bayanihan To Heal As One Law includes a provision that allows loan borrowers to defer their repayments during the lockdown period, and any extension of this feature will impact banks adversely.

Diokno noted that the strong and well capitalized domestic banking industry “is one of the pillars of strength of the Philippine economy going into this once-in-a lifetime health and economic crises.”

“Moving forward, Philippine banks will play a pivotal role in the post-coronavirus recovery process, and Congress should be cautious not to unduly weaken them,” he said, adding that the banking regulator backs legislative measures like the proposed Financial Institutions Strategic Transfer (FIST) and the Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery (GUIDE) laws.

The FIST scheme will allow banks to transfer distressed assets like bad loans into a separate corporate entity and, in doing so, will clean up their books and give them the headroom to underwrite new loans necessary to keep the economy running.

The GUIDE measure, meanwhile, will extend guarantees to the borrowings of small firms to encourage banks to lend to them.

Following the implementation of community quarantine protocols in March, the central bank deployed various measures to shore up the banking system and support credit activity.

These included reducing the policy rate by a total of 125 basis points since February 2020; cutting reserve requirement ratios of universal and commercial banks and non-bank financial institutions with quasi-banking functions by 200 basis points. INQ