BSP eases cap on bank loans to Duterte admin infra deals

The central bank on Thursday unveiled a plan meant to give a big boost to the flagship economic program of the Duterte administration by easing the loan limits on financial institutions that finance infrastructure deals pushed by the government.

In a statement, the Bangko Sentral ng Pilipinas said bank lending to projects under the so-called ‘Build, Build, Build’ initiative will have separate a single borrower’s limit from the regular  loan cap imposed on the debtor firm.

That means conglomerates or companies that are constrained by existing debt levels from borrowing more from local banks may now take on more loans if these are meant to fund infrastructure projects.

The move was approved by the central bank’s policy making Monetary Board and echoes a similar scheme implemented — with limited efficacy — during the Aquino administration where loans for what was then called Public-Private Partnership deals were exempted from the lending cap.

The single borrower’s limit currently stands at 25 percent of a financial institution’s net worth, and is meant to protect banks from the risk of having too much of their resources tied up with a just one debtor.

The BSP explained that the eased lending rules will apply to “special purpose entities” created as vehicles to implement major projects.

“Such special purpose entities were given their own separate [loan limits] in consideration of the independence they usually enjoy under project finance schemes,” the central bank said.

“Under these schemes, special purpose entities are ring-fenced by appropriate legal structures, operational set up, and controls so that assets and cash flows of [these firms] remain separate from those of their sponsors, shareholders, and other related parties,” the regulator added.

It explained that this policy reform is premised on the financial institutions’ “understanding of risks of such exposures.”

“Lending to such dedicated special purpose entities shall be subject to certain conditions to ensure effective risk monitoring and management,” the BSP said.

It is also required that purposes of project finance loans be in line with the government’s priority programs and projects, and banks “must ensure standard prudential controls.”

These may include pledges of borrowers’ shares, assignments of borrowers’ assets, revenues, cash waterfall accounts and project documents.

“To curb excessive credit risk-taking, banks must also take into account, their total project finance exposures in managing large exposures and credit risk concentrations,” the BSP said. “These prudential controls shall likewise apply to credit extended by banks to their special purpose entities’ subsidiaries and affiliates involved in project finance activities.”

As part of this initiative, banks are required to submit more detailed reports on their real estate exposures including project finance loans starting in the second half of 2018.

“This will aid the BSP in crafting more informed and calibrated policy decisions in areas that require careful supervisory action,” the central bank said.