THE BANGKO SENTRAL ng Pilipinas (BSP) has eased credit limits imposed on banks in lending to their subsidiaries and affiliates, effectively freeing up more funds which they can hand out for infrastructure and project finance.
In a statement on Friday, the Monetary Board said it has removed loans guaranteed by multilateral financial institutions (MFIs) in computing a bank’s exposure to its subsidiaries and affiliate firms.
The World Bank’s International Finance Corp., the Asian Development Bank and the Credit Guarantee and Investment Facility are considered as MFIs where the Philippines is a member of shareholder.
The new rule aims to promote a “level playing field” for bank borrowers, the Bangko Sentral ng Pilipinas (BSP) said, noting that the change simply reflects the similar risk treatment attached to borrowings from multilateral lenders.
Under existing rules, loans guaranteed by MFIs are not computed under the 25% single borrower’s limit imposed on banks, as well as the credit ceiling for related parties.
Extension of this exclusion to bank loans to subsidiaries and affiliates, BSP said, “is to recognize that the mitigation of credit risk similarly applies to all MFI-guaranteeed loans regardless of whether the borrower is a third party, DOSRI (director, officer, stockholder and related interests) or a subsidiary or affiliate of the bank”.
“The rationalization of prudential measures is expected to result in greater flexibilities in financing the country’s large-scale projects for developmental purposes,” the central bank said in its statement.
“In addition, the credit risk mitigant offered by MFIs will provide added cushion for the credit risk exposures of the banking system.”
BSP Governor Nestor A. Espenilla, Jr. said the eased rules would likewise allow banks to have more cash which they can deploy as loans, particularly for big-ticket projects under the government’s ambitious infrastructure spending plan.
“It will enable concerned banks to increase their loan budget available for high priority projects (e.g. infrastructure) that attract MFI guarantees,” Mr. Espenilla told reporters in a mobile phone message.
Economic managers of President Rodrigo R. Duterte have committed to spend P8.4 trillion on infrastructure projects in the next five years, as the government looks to raise the share of spending on these items to P1.899 trillion, pr 7.4% of gross domestic product, in 2022 from a programmed P847.22 million, or 5.32%, this year.
Mr. Espenilla said financing requirements for the current infrastructure development drive are “so huge” that they would need support from the local debt market, which the BSP wants to develop as a deeper source of capital. – M. L. T. Lopez