By Luz Wendy T. Noble, Reporter

Industry groups on Friday opposed a congressional proposal for a one-year debt embargo, urging lawmakers to help cut the risks for the financial system.

“The Bankers Association of the Philippines (BAP) endorses a 30-day grace period extended to areas under a modified enhanced community quarantine and enhanced community quarantine,” BAP said in a statement.

The Management Association of the Philippines (MAP) also warned that a one-year debt moratorium under a measure that gives President Rodrigo R. Duterte special powers to fight the coronavirus poses risks to the local banking system.

“The moratorium will put at risk our banks’ ability to service the withdrawals of their clients and adversely affect public confidence in the banking system,” MAP President Francisco E. Lim said in a statement.

“It will also drastically lessen banks’ liquidity, curtailing their capacity to lend at a time when businesses badly need capital to help them recover from the pandemic,” he added.

The groups issued the statements after Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the proposal could “significantly strain” the banking industry and lead to a bank run.

The House of Representatives version of the so-called Bayanihan 2 bil calls for the one-year debt holiday, while the Senate version grants a shorter 30-day grace period.

The umbrella organization of local financing companies said it agrees with the Senate version of the bill that seeks to give President Rodrigo R. Duterte special powers to deal with the pandemic. The Senate bill grants a shorter 30-day grace period.

Senator Juan Edgardo M. Angara on Thursday said lawmakers trying to reconcile the two versions were leaning toward a 90-day moratorium, although 45 and 60-day periods were also being discussed.

He said the final version of the bill won’t probably include the one-year debt holiday. Chairman Angelito M. Villanueva said a blanket 90-day moratorium is not needed since there are installment products with a three-month term.

“This will effectively double the term and materially increase the nonperforming loan risk,” he said in a text message. “If forced, the shortest period of 45 days would be best.”

Mr. Villanueva said the grace period should only be applied to interest on interest, penalties and charges.

“Similar to the implementing rules and regulations of Bayanihan I, accrued interest should still be applicable, collected at the end of the grace period, or to be paid even during the enhanced community quarantine and modified enhanced community quarantine period,” he said.

The Chamber of Thrift Banks said it a 30-day loan moratorium was more acceptable.

“If a loan payment moratorium is to be imposed, it should be kept short to minimize the risks,” CTB Executive Director Suzanne I. Felix said in an e-mailed reply to questions.

“Legislation and policy responses during this time of crisis should be calibrated to ensure financial stability and contain the economic and financial fallout of the COVID-19 event,” she added.

The banking industry’s capital adequacy ratio was at 12.73%, as of June higher than the central bank’s 10% minimum requirement. Gross bad loans rose to 2.53%, the highest in nearly six years.