Small lenders get relief in booking COVID-19 losses

The Securities and Exchange Commission (SEC) has granted financing and lending companies as well as microfinance nongovernmental organizations (NGOs) a maximum leeway of five years to build up a buffer for credit losses to be incurred this challenging period amid the prolonged COVID-19 pandemic.

This was in line with the Bayanihan to Recover as One Act or Republic Act No. 11494, which allowed the SEC to adopt measures to “enable companies to cope with the impact brought by COVID-19 pandemic,” SEC Chair Emilio Aquino said in a memorandum dated Dec. 28.

This also heeded the prudential accounting relief measures requested by Philippine Finance Association and Microfinance Council of the Philippines.

Aquino said the SEC en banc decided to provide relief by allowing the staggered booking of provisions for credit losses calculated in accordance with the requirements of the Philippine Financial Reporting Standards (PFRS) for small- and medium-sized entities, as applicable, for the annual period ending on or after Dec. 31.

This leeway is offered for a maximum period of five years using the straight-line amortization method to be recognized in the profit or loss statement of the reporting entity.

However, Aquino said financing and lending companies as well as microfinance NGOs should continue to report actual past due and nonperforming loans and provisions for credit losses in their reports submitted to the corporate governance and finance department. This is needed to generate important industry statistics and provide the SEC with information on the true health of these institutions, he added.

The accounting relief is considered a deviation from the requirements of the PFRS. However, it is seen needed to help lenders outside the banking system, which do not have deposit-taking capabilities, stay afloat during this extraordinarily challenging period.

But the lenders that will choose to avail themselves of the relief should prepare their audited financial statements in accordance with an industry-specific framework as modified by the application of the financial reporting reliefs issued and approved by the SEC.

Those that will choose to adopt the industry-specific framework should specify in the “basis of preparation of the financial statements” section the relief availed of and indicate that such availment covered only current year transactions.

To ensure transparency in financial reporting, the SEC said a qualitative disclosure of the impact of the relief availed should be disclosed.

The entities must comply with the requirement of the financial reporting standards in making the adjustments when they revert to full PFRS.