THE CENTRAL BANK will count credit extended to large enterprises as part of banks’ and quasi-banks’ compliance with their reserve requirements to support businesses hardest hit by the pandemic.

Circular No. 1087 signed by Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno on May 27 amended Circular No. 1083 issued on April 22 to count loans to large enterprises as alternative reserve compliance until end-2021 in addition to credit to micro-, small- and medium-sized enterprises (MSME).

BSP Deputy Governor Chuchi G. Fonacier told BusinessWorld last week the revised measures are meant to provide credit and help ease the financial burden of firms heavily affected by the coronavirus disease 2019 (COVID-19) pandemic.

According to the circular which takes effect May 29, peso-denominated loans disbursed for large enterprises, except those granted to banks and quasi-banks, could be counted as reserve compliance.

It added that loans for large firms can be counted as banks’ reserves provided they were granted, renewed or restructured from March 15 onwards.

These should likewise not be pledged or rediscounted with BSP facilities in order to qualify as reserve compliance.

“The loans to large enterprises shall be valued at amortized cost, gross of allowance for credit losses, but shall exclude amounts equivalent to accrued interest and accumulated charges which have been capitalized or made part of the principal of restructured loans to large enterprises,” the circular said.

The BSP said credit to these firms will be considered as alternate reserve compliance if the business is not part of a conglomerate, has an asset size of more than P100 million and has 200 or more employees.

Under the central bank’s criteria, qualified firms should be “directly and adversely impacted by COVID-19,” with (i) its liabilities already going beyond its assets, or has seen at least a 50% drop in gross receipts for one quarter. In either instance, the BSP said the large enterprise is “generally unable to pay its obligations” due to the crisis or as determined by a regulatory agency.

Banking industry leaders welcomed the new relief measure from the central bank.

“This provision will encourage continued bank support to companies that are at the larger end of the MSME segment,” Bankers Association of the Philippines President and Bank of the Philippine Islands President and Chief Executive Officer Cezar P. Consing said in an e-mail.

“By counting lending to these companies (large enterprises) as eligible for reserve treatment, the BSP is facilitating continued bank lending to this important segment of our economy,” he added.

The Chamber of Thrift Banks (CTB) also lauded the central bank’s “innovative monetary relief measures” in aiding embattled business industries.

“The impact of this new scheme will vary and depend on each bank’s risk appetite, liquidity position, and capitalization,” CTB Executive Director Suzanne I. Felix said.

As many industries face tougher times amid temporary shutdowns, drops in earnings, possible loan defaults and difficulty in loan repayments may occur, according to UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

“I cannot discount that defaults/difficulty in payments will happen. There will be difficulty along the way, and I think, banks and quasi-banks are very aware of the challenges,” Mr. Asuncion said in an e-mail.

However, he said the BSP’s move to include lending to large firms as reserve compliance during this time is a welcome development to boost liquidity during a crisis.

“All economic actors need to be liquid in a crisis and all would need to sustain a level of liquidity to survive in a crisis. This central bank circular is responding to a need and it is fitting to help firms continue business and employ people eventually,” he said.

The reserve requirement ratio (RRR) of universal commercial banks currently stands at 12% after the BSP reduced it by 200 basis points in April. Meanwhile, the reserve requirement of thrift and rural banks are at four percent and three percent, respectively, while the RRR of nonbanks with quasi-banking functions is at 14%. — Luz Wendy T. Noble