Bank loan

Flexible approach to bank loan restructuring encouraged


Lawrence Agcaoili – The Filipino Star

October 25, 2021 | 00h00

MANILA, Philippines – Banks and financial institutions are urged to take a more flexible approach in restructuring loans from borrowers severely affected by the pandemic, according to Bangko Sentral ng Pilipinas.

PASB Deputy Governor Chuchi Fonacier said the Monetary Board, through Resolution 1401, approved guidelines on the regulatory treatment of restructured loans for the purpose of measuring expected credit losses.

“Loan modification should aim to provide sustainable support measures to creditworthy borrowers facing financial difficulties to help promote overall loan quality and contribute to a broader economic recovery. In this regard, financial institutions supervised by the BSP or BSFI should establish prudent criteria for evaluating and modifying the terms and conditions of loans, ”Fonacier said.

Fonacier said in memorandum 2021-056 that guidelines on the regulatory treatment of restructured loans for the purpose of measuring expected credit losses will be in effect until the end of December next year.

“The classification of modified loans at Stage 1, 2 or 3 for the purposes of determining expected credit losses should be based on an assessment of the extent of borrowers’ financial hardship and their ability to fully repay the loan out of the basis of revised conditions. “said Fonacier.

BSFI amended or changed the original terms and conditions of loan agreements in response to the application of the mandatory grace period under Republic Act 11469 or the Bayanihan to Heal as One Act (Bayanihan 1) and RA 11494 or the Bayanihan to Recover as One Act (Bayanihan 2) and provide relief to their borrowers who have been affected by the pandemic.

Changes to the terms and conditions of the loan agreement include postponements or repayment holidays, extension of loan terms, changes in principal and / or interest payments, interest rates, fees, charges or guarantees, among others.

“The continued uncertainty in the economic environment due to the COVID-19 health crisis has had a negative impact on the income, cash flow and financial position of households and businesses. In this regard, BSP expects BSFIs to grant relief measures to their borrowers to reduce their debt burden and ultimately contribute to economic recovery, ”Fonacier said.

She explained that relief measures include, among other things, modifying the terms and conditions of loan agreements to reflect the change in the borrowers’ projected cash flows and improve the likelihood of full recovery.

“The BSP is issuing this memorandum to provide guidance on the regulatory treatment of loans whose terms have been changed due to the impact of the pandemic, particularly consumer loans, for the purposes of measuring expected credit losses and to classify the accounts as non-performing, ”she said.

Restructured loans from Philippine banks amounted to 334.62 billion pesos in August, 3.2 times the 104.51 billion pesos recorded in the same month last year, resulting in a restructured loan ratio of 3 , 07%.

Likewise, overdue loans referring to all types of loans left pending beyond the payment date increased 2.1% to P579.6 billion from P567.88 billion for an overdue ratio of 5 , 32 percent.

On the other hand, the industry’s non-performing loans jumped 61.3% to P491.93 billion from P305 billion, resulting in a high 13-year NPL ratio of 4.51%.