BSP measures prompt banks to resume lending, says Diokno

Bank lending has begun to pick up, thanks in part to policies adopted by the central bank to limit the number of defaults due to the coronavirus pandemic and preserve the integrity of the financial system.

Thus said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, adding that the agency provided additional relief measures on restructured loans and the impact of loan provisioning on bank capital to motivate institutions to grant new loans and extend financial relief to borrowers.

The two measures prescribe a flexible and systemic approach to restructuring loans of troubled borrowers and soften the impact of loan loss provisioning reserves on the bank’s capital.

“The recently issued twin relief measures reinforce the government’s national efforts aimed at supporting the country’s steady path towards balanced growth,” he said in an online briefing on Thursday.

“With the continued normalization of economic activity, sustained financing to households and productive enterprises will be crucial to their recovery and resumption of operations,” he added.

He noted that, due in part to the BSP’s existing COVID-19 regulatory toolkit and policy reforms, banks continued to actively lend and restructure loans of borrowers during the pandemic.

The level of restructured loans surged by 2.6 times, settling at P338.5 billion as of end-September 2021 from the P130.9 billion registered in the same period last year. Restructured loans as a proportion to total loan portfolio also rose to 3.1 percent as of end-September 2021, up from the 1.2 percent ratio recorded a year ago.

Meanwhile, the amount of new loans granted by universal and commercial banks on a monthly basis has been relatively stable, ranging from 6 percent to 8 percent of loans outstanding as of the reference month.

Universal and commercial banks lent out P816.1 billion in new loans in September 2021, accounting for 8.1 percent of the industry’s total loan portfolio of P10 trillion as of end-September 2021.

Banks also continue to lend or restructure loans to micro-, small- and medium enterprises or MSMEs.

For the reserve week Nov. 4, 2021, banks utilized an average of P202.2 billion loans to MSMEs as compliance with the reserve requirements. This is a substantial increase from the P8.7 billion in MSME loans reported in April 2020.

“The BSP expects that the back-to-back relief measures will further boost bank’s efforts to assist their clients through the extension of appropriate financing arrangements,” Diokno said.

The measure on restructured loans reminds banks to take a more flexible and systematic approach in modifying terms and conditions of loans by considering the changes in the projected cash flows of their borrowers.

In this regard, modifications to loan terms that are appropriately tailored to the borrower’s circumstances will not only increase probability of collection but would also generally result in the loan being classified as “performing.”

Complementary to this, the BSP also issued a measure that softens the impact of provisioning for loans on banks’ capital.

This allows banks to add back to their capital the net increase in provisioning for loans tagged as performing or underperforming under the first measure.