Bank lending has started to recover, in part thanks to policies adopted by the central bank to limit the number of defaults due to the coronavirus pandemic and preserve the integrity of the financial system.
So, said Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno, adding that the agency has provided additional relief measures on restructured loans and the impact of loan provisioning on bank capital to incentivize banks. institutions to provide new loans and extend financial assistance to borrowers.
Both measures prescribe a flexible and systemic approach to restructuring loans from distressed borrowers and mitigate the impact of bad debt provisioning reserves on bank capital.
“The recently released twin relief measures strengthen the government’s national efforts to support the country’s steady path to balanced growth,” he said in an online briefing Thursday.
“With the continued normalization of economic activity, sustained financing of households and productive enterprises will be crucial for their recovery and the resumption of their operations,” he added.
He noted that, in part due to BSP’s existing COVID-19 regulatory toolkit and policy reforms, banks continued to actively lend and restructure borrower loans during the pandemic.
The level of restructured loans increased 2.6-fold to 338.5 billion pesos at the end of September 2021, compared to 130.9 billion pesos recorded in the same period last year. Restructured loans as a proportion of the total loan portfolio also increased to 3.1% at end-September 2021, from 1.2% a year ago.
At the same time, the amount of new loans granted by universal and commercial banks on a monthly basis remained relatively stable, ranging from 6% to 8% of outstanding loans in the reference month.
Universal and commercial banks lent 816.1 billion pesos in new loans in September 2021, representing 8.1% of the sector’s total loan portfolio of 10,000 billion pesos at the end of September 2021.
Banks also continue to lend or restructure loans to micro, small and medium enterprises or MSMEs.
For the reserve week of November 4, 2021, banks used an average of P202.2 billion in loans to MSMEs to meet reserve requirements. This is a substantial increase from the 8.7 billion pesos in MSME loans reported in April 2020.
“BSP expects the back-to-back relief measures to further strengthen the bank’s efforts to assist its customers through the extension of appropriate financing arrangements,” Diokno said.
The restructured loan measure reminds banks to take a more flexible and systematic approach in changing the terms and conditions of loans taking into account changes in the projected cash flows of their borrowers.
In this regard, changes in loan conditions tailored to the borrower’s circumstances will not only increase the likelihood of collection, but will also generally result in the loan being classified as “performing”.
In addition, the BSP has also issued a measure that mitigates the impact of the provisioning of loans on the capital of banks.
This allows banks to add to their capital the net increase in provisioning for loans classified as performing or underperforming according to the first measure.
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