BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno on Thursday warned the proposed one-year debt moratorium for borrowers under the Bayanihan to Recover as One (Bayanihan II) measure will “significantly strain” the banking industry.

The central bank chief’s warning comes as the Bicameral Conference Committee is set to meet today (Aug. 14) to reconcile the provisions of Bayanihan II, a stimulus measure that would provide much-needed financial aid for sectors badly affected by the pandemic.

In an online briefing, Mr. Diokno said a one-year debt moratorium could lead to “unintended consequences that will severely affect the banking industry, the financial system and the economy.”

“It will significantly strain the liquidity of banks…The inability of a bank to service withdrawal may trigger a bank run and will undermine the confidence of the public in the banking system,” he said.

The House of Representatives on Monday passed on third and final reading House Bill No. 6953 or Bayanihan II. Under Section 3, lenders are “encouraged to extend the terms 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.”

This would cover loans whose payment dates fall due between March 16 and Dec. 31, 2020. The loan term may be extended for up to one year, and further extended by another year. Only principal payments may be suspended in case of a moratorium.

Under the bill, banks that will implement a debt moratorium will be entitled to regulatory relief including staggered booking of allowance for credit losses and exemption from loan-loss provisioning, among others.

Meanwhile, Senate Bill No. 1564 provides for a minimum 30-day grace period for loans with payments falling between March 16 and Dec. 31, 2020.

“While I keep saying that Philippine banking industry is sound, some banks might end up standing while others might be adversely affected,” Mr. Diokno said.

The BSP chief said a longer debt moratorium will push banks to adopt stricter underwriting standards, with some likely to even “completely deny credit to some sectors including MSMEs.”

Sought for comment, Senator Juan Edgardo M. Angara said the final version of Bayanihan II will not likely include the 365-day debt moratorium. 

“It won’t be 365 days (for the debt moratorium), the most it will be from the looks of initial talks is 90 days although 45 and 60-day periods have also been mentioned,” Mr. Angara told BusinessWorld in a text message.

A nationwide grace period was implemented for loan payments falling due during the Luzon-wide enhanced community quarantine (ECQ) that began on March 16. The grace period ended as restrictions eased starting June.

BSP Deputy Governor Chuchi G. Fonacier earlier told BusinessWorld banks continue to accommodate loan payment extensions on a case-to-case basis depending on their own assessments. She said any further grace period will be dependent on the provisions of the Bayanihan II once it is signed into law.

Bankers Association of the Philippines President Cezar P. Consing earlier said a mandated one-year debt moratorium will cause “liquidity problems and could threaten the viability of many banks.”

Fintech on Tuesday also expressed opposition to the Bayanihan II’s provision, saying the debt moratorium could lead to the closure of financing and lending companies that are granting credit to the unbanked population.

BSP data showed gross nonperforming loans of banks rose to 2.53% in June, the highest in nearly six years. This is against the lending industry’s total loan book, which dropped 1.27% to P10.82 trillion in June.

The banking industry’s capital adequacy ratio stood at 12.73% as of June, well beyond the 10% minimum required by the BSP. — Luz Wendy T. Noble