THE CENTRAL BANK published new rules to streamline the process of computing loan limits for non-stock savings and loans associations (NSSLAs) to better manage credit risks.
The Bangko Sentral ng Pilipinas (BSP) through Circular 1026 published in a newspaper this week details changes to the computation of the single borrower’s limit (SBL) for these non-bank players. The measure seeks to enhance safeguards against over-lending.
NSSLAs collect the savings of its members and provide long-term financing for homes and extend personal loans. This is usually formed by employees and officers in one company, as well as government employees in an agency including member-retirees and their immediate family members.
Meanwhile, SBLs put a cap on the amount which a financial firm can lend to a certain person or institution in order to minimize risks in the case of the borrower’s default.
“While the Bangko Sentral recognizes that the NSSLAs have to adequately serve their members’ financial needs, their lending operations shall be bound by the standards and expectations set forth in the NSSLA Law and its implementing rules and regulations,” the circular read, as signed by BSP Governor Nestor A. Espenilla, Jr.
The new rules break down the computation of loan limits for member-borrowers. In general, credit lines extended to one person must not exceed the member’s deposits and capital contributions, plus 12 months’ worth of his or her regular salary.
A variable limit is also allowed, which entails 70% of the fair market value of a property which has been posted as collateral for a previous loan. Appraisal may be done in-house if the asset is worth below P5 million, but independent appraisers must be tapped for properties with a higher value.
“The amount of loans to be used in determining compliance with the SBL of a member shall be the sum of gross amount of the new loan he applied for and the total outstanding balance of his existing loans with the NSSLA,” the issuance also noted.
The BSP also places the burden on the financial firm’s board of trustees to “adopt appropriate policies and procedures” to monitor their compliance to the SBL, which should be included in the NSSLA’s risk management system.
An individual borrower’s loan limit must be computed every time a person gets a loan approved or restructured. For their part, NSSLAs shall keep documentary proof to support their SBL computations. They are likewise required to submit a quarterly report to the regulator on their compliance to the loan limits.
The central bank has been tightening rules on non-bank firms as they seek to tighten its watch on the financial sector.
In 2018, the BSP also raised the standards on NSSLAs by installing a compliance risk management system and capping service fees.
These non-bank lenders have also been prohibited to engage in unfair practices like recognizing unused insurance premiums as income, limiting capital contributions or concentrating control to family and relatives, granting unauthorized salaries, and handing out new or additional loans with poor credit history, among others. — Melissa Luz T. Lopez