Grace period on loans as a form of bayanihan

Currently, around 90,000 businesses*, including 6% of micro, small and medium enterprises**, remain closed due to the more than six-month community quarantine imposed in the National Capital Region and several provinces to prevent the ongoing spread of COVID-19.*** Meanwhile, poverty incidence rate is expected to increase next year, at a range of 15.5% to 17.5%, due to the continuing national emergency.****

Earlier on, the President had signed into law Republic Act (RA) No. 11469, or the Bayanihan to Heal as One Act (the Bayanihan Act) which took effect on March 25. With the intention of alleviating COVID-19’s economic consequences, among others, the Bayanihan Act granted the President temporary emergency powers, such as the imposition of a 30-day grace period on the payment of loans falling due during the enhanced community quarantine without incurring interests or other charges. However, the Bayanihan Act expired on June 24.

On Sept. 15, RA No. 11494, or the Bayanihan to Recover as One Act (Bayanihan II) took effect, seeking to extend and add to the powers granted to the President under the Bayanihan Act.

Section 4(uu) of Bayanihan II directs all banks, quasi-banks, financing and lending companies, and other financial institutions, public and private, to grant a one-time 60-day grace period for the payment of all outstanding loans falling due, or any part thereof, on or before Dec. 31, without incurring interest on interests, penalties, fees, or other charges.

On Sept. 18, the Bangko Sentral ng Pilipinas (BSP) issued Memorandum No. M-2020-068 directing all BSP-Supervised Financial Institutions, or entities with lending operations such as banks, quasi-banks, non-stock savings and loan associations, credit card issuers, trust departments/corporations, and other credit-granting entities under BSP supervision to immediately implement the Grace Period.*****

On Sept. 21, the Securities and Exchange Commission issued a Notice calling for the implementation of Section 4(uu) of Bayanihan II on loans extended by financing and lending companies and nongovernment organizations.****** Subsequently, the BSP issued on Sept. 28 Memorandum No. M-2020-074*******, or the Implementing Rules and Regulations of Section 4(uu) of Bayanihan II.

The Rules cover loans which include, among others, salary, personal, housing, commercial, and motor vehicle loans, amortizations, and financial lease payments, premium payments, and credit card payments, to the exclusion of interbank loans and bank borrowings. The Grace Period applies only to loans current and outstanding upon the effectivity of Bayanihan II until Dec. 31, and does not include loans falling due before such effectivity date.

However, loans classified as current before Sept. 15 with grace periods that extend beyond such a date are covered. In the case of credit cards, existing loans shall refer to transactions made prior to Sept. 15.

The Rules likewise apply to multiple loans with principal and/or interest, including amortizations, falling due on or before Dec. 31; the Grace Period is applied to each loan. For loans with monthly amortization falling due within Sept. 15 and Dec. 31, the last payment due date of said loan, even if falling beyond the said period, shall enjoy the Grace Period. The Grace Period effectively extends the payment due dates of the entire loan.

During the Grace Period, Covered Institutions may not impose interest on interests, penalties, fees, or charges for late payment. The interest chargeable for each installment shall continue to accrue during the Grace Period, but shall be payable on the new due date. The principal and the accrued interest may be paid on a staggered basis until Dec. 31. Nonetheless, the borrower is not precluded from paying the principal and accrued interest in full on the due date after the application of the Grace Period.

Although Covered Institutions are prohibited from requiring borrowers to waive the Grace Period, and no waiver previously executed by borrowers on payments falling due on or before Dec. 31 shall be valid, borrowers may choose to pay their obligations as they fall due. In addition, Covered Institutions and their respective borrowers may agree on a grace period longer than 60 days.

The law and regulations appear to be straightforward in providing enterprises and individuals assistance in coping with the peculiar circumstances brought about by the pandemic on the economy. Whether the spirit of Bayanihan will truly be achieved by these measures ultimately depends on BSP supervision, strict compliance by Covered Institutions, and borrower-awareness of the applicable rules.

*https://news.abs-cbn.com/business/09/28/20/number-of-closed-businesses-closure-affected-covid19-coronavirus-disease-pandemic-philippines, statement by DTI Secretary Ramon Lopez on Sept. 21, 2020, published Sept. 28, 2020.

**https://news.abs-cbn.com/business/09/28/20/number-of-closed-businesses-closure-affected-covid19-coronavirus-disease-pandemic-philippines, statement by DTI Secretary Ramon Lopez in DTI budget hearing in the Senate, published Sept. 28, 2020.

***https://news.abs-cbn.com/business/09/28/20/number-of-closed-businesses-closure-affected-ovid19-coronavirus-disease-pandemic-philippines, published Sept. 28, 2020.

****https://cnnphilippines.com/news/2020/9/10/NEDA-poverty-unemployment-2021.html, statement by Acting Socioeconomic Planning Secretary Karl Kendrick Chua, published on Sept. 10, 2020.

*****http://www.bsp.gov.ph/downloads/regulations/attachments/2020/m068.pdf

******https://www.sec.gov.ph/notices/implementation-of-mandatory-grace-period-for-all-loans-pursuant-to-the-bayanihan-to-recover-as-one-act/

*******http://www.bsp.gov.ph/downloads/regulations/attachments/2020/m074.pdf

This article is for informational and educational purposes only. It is not offered and does not constitute legal advice or legal opinion.

Nestor Fernando T. Siazon is an Associate of the Corporate and Special Projects Department (CSPD) of the Angara Abello Concepcion Regala & Cruz Law Offices or ACCRALAW.

(632) 8830-8000

ntsiazon@accralaw.com