Published 4 February 2022, The Daily Tribune

Sustained financial activity and the provision of much-needed funds to keep businesses afloat are pegged as key to economic recovery. With this, it came as no surprise that the Monetary Board recently extended the effectivity of prudential relief measures for banks and supervised financial institutions (BSFI) amidst the COVID pandemic, with the goal of providing them increased capacity to sustain lending activities and afford consumers continued access to financial services, especially affected industries and sectors.

Pursuant to Monetary Board Resolution 65 issued on 13 January 2022 and as embodied in Bangko Sentral ng Pilipinas (BSP) Memorandum M-2022 (Deputy Governor for Financial Supervision Sector) dated 17 January 2022, the prudential reliefs to BSFI shall continue to apply until the end of 2022.

Included in the prudential measures are the temporary relaxation in the assigned credit risk weight of banks for loans extended to micro, small and medium enterprises (MSME). Credit risk weights are assigned for purposes of computing compliance with the BSP’s Risk-Based Capital Adequacy Framework expressed as a percentage of qualifying capital to risk-weighted assets. It is employed as a regulatory standard so that depositors are protected and the financial system is maintained as stable and efficient by limiting assigned credit risk weight vis-à-vis the BSFI’s capital.

To aid stand-alone thrift banks, rural banks, and cooperative banks, the BSP also extended the temporary reduction of their Minimum Liquidity Ratio (MLR) to 16 percent until the end of 2022.

The regulations also granted a temporary relaxation of the Maximum Borrowing Limit of pawnshops by increasing the allowed percentage of their total borrowings to pledge loans from 50 percent to 70 percent until 31 December 2022.

Most notable of these measures, however, is the non-imposition of sanctions for breach in single borrower’s limit (SBL) by foreign bank branches established prior to Republic Act 10641, or An Act Allowing the Full Entry of Foreign Banks in the Philippines, approved in July 2014. Existing foreign bank branches established in the Philippines prior to Republic Act 10641 that breach the SBL shall not be subject to sanctions until 31 December 2022, provided that the amount of the new loan, credit accommodation, or guarantee extended as well as the restructured, renewed, and refinanced existing credit exposures, beginning 1 January 2021 until 31 December 2022, shall not exceed the prescribed percentage limit under the MORB.

These temporary relaxation and relief measures recognize the continuing demand for liquidity due to the COVID-19 pandemic. Hence, aims to provide banks with support to service said demand and to expand their lending activities.

To obtain capital relief, all documentation used in collateralized transactions and for documenting guarantees must be binding on all parties and legally enforceable in all relevant jurisdictions aside from compliance with disclosure requirements. The legal instruments used to effect the collateralization must grant the bank the right to liquidate or take legal possession of it in a timely manner, in the event of default, insolvency, or bankruptcy.

Eligible collateral instruments are cash, certificates of deposits or comparable instruments issued by the lending bank, peso-denominated securities issued by the Philippine National Government and the Bangko Sentral, multilateral development banks, securities with the highest credit quality, central government and central banks of foreign countries, Philippine local government units; non-central government public sector entities of foreign countries; and the first mortgage on residential property, only in the case of loans to individuals for housing purpose.

In addition to regular disclosure requirements, banks are required to disclose in their Annual Reports, where applicable, their tier 1 and 2 capital and breakdown of their components, deductions from Tier 1 50 percent and Tier 2 50 percent capital; total qualifying capital; capital requirements for credit risk, for market risk and for operational risk, and total and Tier 1 capital adequacy ratio on both solo and consolidated base.

The reiteration of these claim and disclosure requirements shows that the prudential measures aim to strike a balance between aiding the bank to provide the financial services needed to spur economic growth, on the one hand, while still ensuring that adequate regulatory and safety measures are in place for the protection of depositors.

By increasing the capacity of BSFI especially thrift banks, rural banks, cooperative banks, and pawnshops which are considered more accessible to the general population and the MSME, it is hoped that these prudential measures help businesses and individuals carry on. It is hoped these measures help create jobs, prevent job loss, and promote overall domestic liquidity and quality of life.

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