BSP set to ease banks’ exposure limits

The Bangko Sentral ng Pilipinas is set to allow banks to engage in more business activities with big corporate clients by further relaxing the single borrower’s limit, or SBL, exempting securities being underwritten by banks from the computation of their exposure to a client. PHOTO FROM SECURITYBANK.COM

The Bangko Sentral ng Pilipinas will further relax the single borrower’s limit (SBL) by exempting securities being underwritten by banks from the computation of their exposure to a client.

The intention of the move is to allow banks to engage in more business activities with big corporate clients, which have huge demand for credit and other financial services.

Under the SBL, bank’s exposure to a single client must not exceed 25 percent of the bank’s net worth. The rule is meant to prevent banks from risks, such as losses due to loan defaults, arising from heavy exposure to one entity.

Currently, “exposure” comes in the form of loans extended to a client, bonds bought by banks from the same client, as well as securities issued by the client and being underwritten by the bank.

BSP deputy governor Nestor Espenilla Jr. said the relaxation of the SBL will be implemented soon after the central bank concludes its ongoing discussion with the banking industry over the details of the move.

Espenilla said the exemption of securities being underwritten by a bank from the SBL rule comes with the condition that said securities must be held by the bank only within a prescribed period. After said period, the securities will already be included in the computation of the SBL if these are still being held by the bank.

“What we are still discussing with the industry is how long the prescribed period is,” Espenilla told the Inquirer.

He said the BSP has agreed to relax the SBL further amid rising economic activities in the country. He said banks were asking for the relaxation of the SBL to meet the rising requirements of their large corporate clients for credit and other financial services.

Some banks have complained that the SBL was keeping them from doing more business with large corporate clients that are making more investments.

“We are responding to requests to ease the SBL amid increasing demand for banking services,” Espenilla said. “As the economy grows, so do investment activities within the economy.”

Early last year, the BSP also issued a regulation relaxing the SBL. In particular, trust entities of banks were given separate SBL.

In late 2010, the BSP also relaxed the SBL by exempting for three years loans that support infrastructure projects under the Public Private Partnership (PPP) program of the government. The intention was to spur loans for public infrastructure initiatives.

Under the PPP, the government invites private enterprises to invest in public infrastructure projects. The objective is to meet the country’s need for infrastructure development even as the government still suffers from budget deficits.