BSP approves limits for standalone projects

In support of the government’s Build, Build, Build initiative, the Monetary Board of the Bangko Sentral ng Pilipinas (BSP) amended regulations providing entities created as vehicles to implement major projects--often special purpose entities (SPEs)-with a separate single borrower’s limit (SBL).

The SBL is currently at 25 percent of a bank’s/quasi-bank’s (QB) net worth.

Such SPEs were given their own separate SBL in consideration of the independence they usually enjoy under project finance schemes.

Under these schemes, SPEs are ring- fenced by appropriate legal structures, operational set up, and controls so that assets and cash flows of SPEs remain separate from those of their sponsors, shareholders, and other related parties.

The BSP’s policy reform is premised on banks/QBs’ understanding of risks of such exposures. Lending to such dedicated SPEs will be subject to certain conditions to ensure effective risk monitoring and management.

It is also required that purposes of project finance loans be in line with the government’s priority programs and projects. Lending banks/QBs must also ensure standard prudential controls. These may include pledges of borrowers’ shares, assignments of borrowers’ assets, revenues, cash waterfall accounts and project documents.

To curb excessive credit risk-taking, banks/QBs must also take into account their total project finance exposures in managing large exposures and credit risk concentrations. These controls apply to credit extended by banks/QBs to their SPE subsidiaries and affiliates involved in project finance activities.

Related to this, Circular No. 976 was also issued. Starting June 30, banks are required to submit more granular reports on their real estate exposures, including project finance loans. This will aid the BSP in crafting more informed and calibrated policy decisions in areas that require careful supervisory action. /