Advertisement

Extended debt moratorium may hurt rural banks

Font Size

RURAL BANKS will likely take a hit if the proposed suspension of loan payments will be extended anew as debt payments are crucial to the capital levels of smaller lenders.

After the lawmakers working on the Bayanihan II bill agreed to settle for a 60-day moratorium last week, Rural Bankers Association of the Philippines (RBAP) President Elizabeth Carlos-Timbol warned a longer or even a 15-day grace period may already be “too much to handle” for small banks.

“Let us not disregard the fact that prolonging the grace period for another 60 days will certainly have adverse effects on the rural banking industry with almost four million loan borrowers as most rural banks are family-owned, small organizations that primarily rely on their borrowers’ payments for their capitalization,” Ms. Timbol said via text message on Sunday.

“Another extension of 15-30 days grace period is already too much to handle for rural banks,” she added.

She said the proposed measure could affect the capacity of rural banks to expand their loans to micro-, small- and medium-sized enterprises (MSMEs) and farmers.

Advertisement

“This may also weaken or even damage the confidence of the depositors when banks could no longer service their withdrawals. RBAP is hoping that legislators will also take into consideration the plight of the rural banks before making decisions,” she said.

A Bicameral Conference Committee is currently working to consolidate bills to reconcile two versions of the Bayanihan 2 bill formally known as the Bayanihan to Recover as One Act — Senate Bill No. 1564 and House Bill No. 6593.

Ms. Timbol said rural banks are willing to cooperate with the government in easing the burden of borrowers amid the ongoing pandemic. She said RBAP also backs economic managers’ statement on the adverse impact of a longer grace period.

Finance Secretary Carlos G. Dominguez III has said a “maximum of 45 days (grace period) is better,” while central bank chief Benjamin E. Diokno said the 60-day period is the “second best solution to a complex issue.”

The Management Association of the Philippines also supported the two-month debt relief as a “good compromise” but warned the measure should not be applied to insurance and pre-need companies as this might affect their ability to service claims.

The Insurance Commission said over the weekend it supports the proposed 60-day grace period on life insurance and pre-need premium payments as an alternative to the earlier proposal of a year-long moratorium, warning a one-year suspension could “spell financial danger” for the industry, which is already suffering due to the slowdown in economic activity.

“We firmly believe that this proposed alternative achieves a balancing of interests. The suggestion affords both life insurance and pre-need customers, as well as life insurance and pre-need companies, much needed relief from the adverse economic and financial effects of the COVID-19 pandemic,” Insurance Commissioner Dennis B. Funa said. — B.M. Laforga

Advertisement
Advertisement