BANKS are expected to be prudent in extending credit amid the pandemic by reviewing their borrowers’ profiles and assessing their loan book, the Bangko Sentral ng Pilipinas (BSP) said.

Memorandum No. M-2020-061 signed by BSP Deputy Governor Chuchi G. Fonacier on Aug. 3 laid out the requirements for banks’ measurement of expected credit losses (ECL) and the treatment of regulatory relief measures granted during the coronavirus disease 2019 (COVID-19) pandemic.

“All BSFIs (BSP-supervised financial institutions) shall be guided by the supervisory expectations on the measurement of ECL under the Philippine Financial Reporting Standards (PFRS) 9 considering the uncertainties brought about by the COVID-19 pandemic,” Ms. Fonacier said.

Ms. Fonacier said the rules were partly based on guidance from the Basel Committee on Banking Supervision and the International Accounting Standards Board.

The BSP said it expects BSFIs to asses their borrowers’ financial capacity when granting credit.

“Decisions to grant new loans or to modify the terms of existing loans should be based on sound assessment of the financial profile of the borrowers,” the issuance said.

Republic Act No. 11469 or the “Bayanihan to Heal As One Act” told lenders to impose a grace period for loan payments with due dates within the enhanced community quarantine and modified enhanced community quarantine period. The said grace period was extended as the lockdown dragged on.

Ms. Fonacier has earlier said banks continue to accommodate loan payment extensions on case-to-case bases following the mandatory grace period.

The BSP said in the guidelines that payments not due during mandatory grace period should not lead to classifying the loans as past due or nonperforming.

It said it is the duty of BSFIs to assess whether borrowers are facing temporary cash flow pressures or serious issues with loan repayments.

“The grant of relief measures in the form of payment holidays, loan payment deferrals, and other similar schemes that effectively moves the payment due date of the loan should not automatically be considered as an indicator of significant increase in credit risk,” it said.

Past due credit made up 5.24% of the banking industry’s loan portfolio as of May, higher than the 3.81% in April, BSP data showed. Meanwhile, banks’ gross nonperforming loan ratio rose to 2.43% in May from 2.31% in April.

Meanwhile, the BSP said lenders that have availed of certain regulatory relief measures amid the pandemic, including the exclusion of eligible accounts from past due and bad loans as well as the staggered booking of allowances for credit losses, will need to report data on these to the BSP.

“This is to facilitate the generation of industry statistics and provide the BSP and the public with information on the true health of the banking system,” it said.

These lenders need to continue to recognize eligible accounts under past due and nonperforming loans in their financial reporting package and capital adequacy ratio reports, the BSP said. — LWTN