ARISE bill provision on loan restructuring seen as ‘unnecessary’

By Beatrice M. Laforga, Genshen L. Espedido
and Luz Wendy T. Noble, Reporters

THE banking industry does not believe it is necessary for the stimulus measure recently approved by the House of Representatives to include a provision “encouraging” banks to extend the term of some consumer and commercial loans for up to two years, since lenders are already doing this on a case-to-case basis.

The House of Representatives last week approved House Bill No. 6815 or the Accelerated Recovery and Investments Stimulus for the Economy of the Philippines (ARISE Philippines) Act on third and final reading.

Under Section 11, banks, nonbank financial institutions (NBFI), lending and financing companies are “encouraged” to extend the term or agree to the restructuring of existing consumer loans of employees of non-essential businesses; commercial loans of non-essential businesses; and local government loans that fall due between March 16, 2020 and December 31, 2020. The loan term may be extended for up to two years, while only principal payments may be suspended in case of a moratorium.

The bill also states banks and NBFIs that agree to extend or restructure loans will be able to get some regulatory relief such as “non-inclusion in the bank’s or NBFI’s reporting on nonperforming loans; staggered booking of allowances credit losses; exemption, when applicable, from the limits on real estate loans; and exemption from related party transaction restrictions.”

Sought for comment, Bankers Association of the Philippines (BAP) President Cezar P. Consing on Monday said the bill’s provision is “unnecessary.”

“We think this encouragement is probably unnecessary, as banks in general are prepared to reschedule loan payments on a case-to-case basis, depending on the situation of the borrower and the bank,” Mr. Consing, who is also president and CEO of Bank of the Philippine Islands (BPI) told BusinessWorld in a text message.

While the bill states it is only “encouraging” banks, Mr. Consing said mandating a moratorium on loan payments could result in liquidity issues and might “threaten the viability” of a lot of banks.

“If the one-year moratorium were to be mandated, the absence of loan payments would cause liquidity problems and could threaten the viability of many banks. Fortunately, ARISE does not call for this,” he added.

Chamber of Thrift Banks Executive Director Suzanne I. Felix said some lenders are already restructuring loans for clients affected by the coronavirus crisis.

“While it merely encourages FIs (financial institutions) to do the restructuring, we would rather that this provision be dispensed with to avoid any misunderstanding later on as bank clients may interpret this differently,” Ms. Felix said in an e-mail to BusinessWorld.

“Even without this provision, the banks have been engaging their clients and accommodating their loan payment requests on a case-to-case basis,” she added.

For the Rural Bankers Association of the Philippines (RBAP), the bill’s provision is more applicable to bigger players as most of the credit that rural banks extend to small farmers, micro-entrepreneurs and wage earners in the countryside are payable over the short term or in less than one year.

“Being the smallest players in the banking community with lesser resources and capital yet servicing the riskiest segments, (a mandatory one-year extension of loan payments) will potentially place a number of rural banks at risk due to possible liquidity shortfall if funds are not sourced in due time to stabilize their cash position,” RBAP said in an e-mailed response to BusinessWorld’s questions.

However, Marikina Rep. Stella Luz A. Quimbo, one of the principal authors of the ARISE bill, said banks would find it to their advantage to restructure loans amid the crisis.

“Based on our consultations with banks, many of them will find it to their advantage to restructure loans. Otherwise, their loan portfolios will turn sour. Banks are critical in helping businesses recover through low interest loans (with government’s help) so workers get to keep their jobs,” she told BusinessWorld via Viber message on Friday.

ARISE only encourages banks to restructure loans, as Ms. Quimbo acknowledged that banks cannot be mandated to do so under uniform terms.

“Mandating restructuring of loans under rigid terms might cause banks to become unprofitable and this will be a problem in the long run,” she added.

Sought for comment on the bill’s provision, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said: “The operative word is ‘encourages’ not ‘mandates,’ BSP is helping the banks so they can help their clients — both individuals and firms.”