BSP raises loan cap for project finance

MANILA, Philippines—The central bank on Thursday (Oct. 7) temporarily raised the cap on loans for borrowers engaged in project finance activities, which the regulator said could help in the country’s recovery from its deepest economic slump in recorded history.

In a statement, the Bangko Sentral ng Pilipinas (BSP) said banks may apply the separate single borrower’s limit for project finance exposures “including those to water concessionaires” subject to compliance with certain conditions.

The separate single borrower’s limit for project finance has been temporarily increased to 30 percent from 25 percent until Dec. 31, 2021, the BSP said. The move was the latest in a string of loan limit relaxations made by the regulator since the outbreak of the coronavirus pandemic in a bid to aid both borrowers and lenders.

In recent months, the central bank temporarily hiked single borrower limits twice, including a specific policy allowing foreign banks in the Philippines to lend up to 30 percent of their portfolio to a single entity in the country, up from 25 percent.

“The adoption by the BSP of a separate single borrower’s limit for project finance aims to mobilize private sector funding toward projects that support the country’s economic recovery efforts and nation building,” BSP Governor Benjamin Diokno said.

Project finance is a method of funding in which the lender looks primarily at the revenues generated by a single project, both as a source of repayment and as security for the exposure.

To be eligible for the separate loan limit for project finance, bank exposures must meet conditions under Section 362 of the Manual of Regulations for Banks.

These included the proviso that the purpose of the borrowing is to finance projects that are in line with the priority programs and projects of the Philippine government like water supply, wastewater, and sanitation services.

The BSP also said that the terms of the obligation should give the lender a substantial degree of control over the assets and the income that it generates by instituting standard prudential controls to safeguard creditors’ interests.

This may include pledge of the borrower’s shares, assignment of the borrower’s assets, assignment of all revenues and cash waterfall accounts of the project, and assignment of project documents.

To curb excessive credit risk-taking, the lending bank shall consider its total project finance exposures in managing risks and complying with its internal limits on large exposures and credit risk concentrations pursuant to existing BSP regulations.

TSB