Banks told to be flexible in loan restructuring

The Bangko Sentral ng Pilipinas (BSP) said financial institutions need to be flexible in restructuring loans due to the difficulties borrowers have encountered during the pandemic, citing the need to shore up the quality of their loan books en route to an economic recovery.

In Memorandum No. M-2021-056 signed by Deputy Governor Chuchi G. Fonacier, the BSP said that an assessment of expected credit losses (ECL) should take into account borrowers in temporary difficulty who are likely to repay under restructured loan terms.

Ms. Fonacier said the guidelines were issued with an eye towards keeping up the quality of their consumer loan portfolios.

“Loan modification should be targeted at providing sustainable support measures to creditworthy borrowers experiencing financial difficulty to help promote overall loan quality and contribute to the broader economic recovery,” according to the memorandum.

“BSP-supervised financial institutions should also monitor the changes of the risk of default of the concerned borrowers at both the portfolio and individual levels as new information emerges, as well as evaluate the effectiveness of the relief measure extended,” it added.

Modified loan agreements may involve payment deferrals or holidays, extension of loan tenors, as well as changes in principal and interest payment terms, interest rates, fees, charges, and collateral, among others.

“Loans that have been restructured to support borrowers that are experiencing financial difficulties due to the pandemic should not automatically be considered as credit-impaired that will warrant the classification of the accounts as non-performing,” according to the memorandum.

In August, restructured loans rose to P333.617 billion from P104.514 billion a year earlier, according to the BSP. These loans accounted for 3.07% of the industry’s loan portfolio, up from 0.97% in August 2020.

The guidelines on the treatment of restructured loans for the purpose of measuring ECL are effective until the end of 2022.

BSP Governor Benjamin E. Diokno has said banks should consider capacity to pay as well as their own capacity to bear risk when granting relief. He said this approach recognizes that the impact of the pandemic on banks has not been as severe. — Luz Wendy T. Noble