By Melissa Luz T. Lopez,
THE CENTRAL BANK will exclude payment transactions of conglomerates from its computation of the single borrower’s limit (SBL) of financial firms, providing leeway for banks to further raise the loans they extend to these big players.
In a statement, the Bangko Sentral ng Pilipinas (BSP) said it has relaxed the SBL for banks and quasi-banks by allowing them to remove short-term payment and settlement transactions from the cap, effectively freeing up more funds which such companies can borrow.
“Said exclusion was accorded as applying SBL to clearing and settlement accounts may impede financial market activities and fund transfers from one institution to another. Moreover, the distinct nature of clearing and settlement accounts as mere ‘pass through’ for short-term payment transactions entails relatively low credit exposure to the clearing and settlement bank,” the central bank said on Friday.
The SBL is intended to cap banks’ credit exposure to a single client to a maximum of 25% of a bank’s net worth. The ceiling includes loans, credit guarantees, and securities underwritten by universal and commercial banks as well as investment houses that were unsold after 90 days.
This comes at a time of rapid credit growth and with the Duterte administration pursuing an aggressive infrastructure push, which banks are looking to cash in on by underwriting loans for various big-ticket projects.
“It is an easing because we are basically distinguishing between normal transactions and clearing and settlement transactions, because these are the major temporary payments,” BSP Governor Nestor A. Espenilla, Jr. told reporters on the sidelines of a meeting of the Credit Management Association of the Philippines on Friday.
“In the course of settlement sometimes the balances exceed SBL. But it’s very temporary, so if you have to put an SBL on that, it will hamper the clearing and settlement process.”
Mr. Espenilla said the simpler rules will help banks prevent going beyond the loan exposure ceiling, which would merit penalties for breaching the limit.
Businesses must maintain a clearing and settlement account with a local or foreign bank and enter into an agreement with the lender to designate such account as “exclusively for short-term payment transactions,” the BSP said. Banks and quasi-banks, in turn, must adopt internal controls to properly identify which accounts are considered as mere settlement channels versus loan accounts.
Mr. Espenilla added that the reform would promote the efficiency of the payment system,” as the new rule acknowledges that such deposits stand as petty cash kept by businesses to settle its dues.
International credit raters said there are minimal risks seen for the Philippine banking system despite the double-digit credit growth, as these loans currently support upbeat domestic economic activity. However, they noted that corporate lending continues to take the biggest chunk of borrowings, which meant bigger exposures split among several big businesses.