‘Extend grace period for Covid-hit sectors’
THE Philippine economy may take a turn for the worse should the government not extend further the grace period for payment of rent and utilities to ease the financial burden of consumers, experts have warned.
Economist Genesis Kelly S. Lontoc of Ateneo De Manila University warned that more people would be defaulting on their payment on rent, utilities and housing loans given the huge impact of Covid-19 on the country’s economy.
“The GDP is projected by the DBCC [Development Budget Coordination Committee] to decline by -2.0 to -3.4 percent in 2020. Unemployment is expected to worsen. OFW [overseas Filipino workers] remittances are projected to fall. More people are expected to fall into poverty. Given these developments, the risk of more people defaulting on payments is evident,” Lontoc told the Businessmirror, where he writes about personal finance.
Asked for estimates on the number of people who may default on their payments, Lontoc said an “indicator” could be the number of displaced workers.
Labor Assistant Secretary Dominique Tutay on Sunday told the Businessmirror affected workers due to the pandemic have reached 2.8 million from more than 103,000 establishments in temporary closure and flexible-work arrangements.
In Lontoc’s view, the “implication [of the government not extending the grace period] would probably be further negative impact on GDP. Income is limited so reprieve on expenses is needed.”
If the government wants to avert further negative impact on the country’s economy, he said the government must extend the grace period for rent and utilities until there is some recovery in the country’s quarterly GDP growth.
“Quarter 1 decline is 0.2 percent. Expect quarter 2 GDP to be worse. So I feel grace period should be until that point when we start quarterly GDP to recover. So if Q3 GDP improves then maybe grace period can last until that time,” he said.
Luis F. Dumlao, dean of Ateneo de Manila University’s John Gokongwei School of Management, agreed with Lontoc on the need for government to push back further the grace period for payments given the potential economic consequence.
For Dumlao, the grace period should be extended until the head of the household is able or allowed to travel.
“If in 2008 banks were able to argue for ‘too big to fail,’ now is the time to argue for what restaurateur David Chang calls as ‘too small to fail,’” he said. “They’re ‘too small to fail.’ If we allow them to fail, the entire economy can tailspin for the worse.”
Dumlao said it is “hard to imagine” how worse the GDP turnout would be as the secondquarter GDP growth is seen to contract by 9 percent with the imposition of the community quarantine in Luzon and several parts of the country.
Aside from extending the grace period for payment of rent, utilities and even housing loans, the government should refrain from imposing higher taxes, Dumlao said. “Government must carefully study its taxation schemes. When the economy is suffering, imposing higher taxes and introducing new taxes may not be the correct move,” he added.
Meanwhile, the government can also ensure that the stimulus package that will be crafted would be used wisely and is transparent, according to him.
Landlords, he said, may also need to consider extending loan payments.
For those paying rent and utilities, Lontoc said they should aim to achieve a sustainable net cash flow.
“The first way is to generate sustainable positive cash inflows through working well, getting trained, saving, having an emergency fund, getting insurance and investing. The second way is to optimize cash outflows by prioritizing needs over wants, having a budget and negotiating for favorable loan terms,” he said.
Under Republic Act 11469, or the Bayanihan to Heal as One Act, the President was authorized to provide for a minimum of 30-day grace period on residential rents falling due within the period of enhanced community quarantine, without incurring interests, penalties, fees and other charges.
Likewise, the President is also given the power to direct banks, quasi-banks, financing companies, lending companies and other financial institutions, public and private, including Pag-ibig Fund, the Government Service Insurance System and the Social Security System, to implement a minimum of 30-day grace period for the payment of all loans, including but not limited to salary, personal, housing and motor vehicle loans, as well as credit-card payments, falling due within the period of the enhanced community quarantine without incurring interests, penalties, fees, or other charges. Persons with multiple loans shall also be given a minimum 30-day grace period for every loan.
pag-ibig moratorium
Apart from the mandatory 30-day grace period under the Bayanihan to Heal as One Act, the Home Development Mutual Fund or Pag-ibig Fund also offered a three-month loan moratorium to its member-borrowers to defray their expenses during the enhanced community quarantine being implemented by government.
However, Pag-ibig Fund Chief Executive Officer Acmad Rizaldy P. Moti said “it’s still early to talk about extending” the moratorium.
Still, he said, their borrowers can also seek loan restructuring, opting to lengthen their loan term so that the monthly amortization will go down.
“We’d like to assure our borrowers that the Fund will extend all help that we can give them during these uncertain times. We know if they’ve been religiously paying their loans so if and when they suddenly default now, we know that it’s most likely due to this pandemic. Such members definitely deserve all help that they can get,” Moti told the Businessmirror.
While it is still too early to determine the full impact of the pandemic on their nonperforming loan ratio due to the mandatory grace period, Moti said even with a 75-percent drop on their performing loans ratio, Pag-ibig would still record a “decent” net income based on their latest stress tests.
“Our Performing Loans Ratio (PLR) as of March 31 was 91 percent, [a] new record high. And PLR5 (loans up to 5 months delinquent) was at 95 percent. We also monitor PLR5 because of the unique behavior of our socialized housing portfolio—they tend to slide up to 5 months in arrears, then recover,” he said.
In 2019, Pag-ibig Fund achieved its highest-ever net income at P34.37 billion, up from P33.17 billion in 2018.
“In a way, we’re lucky that this pandemic happened this year. The Fund is way stronger now than ever. If this happened 10 years ago, where our PLR was around 75 percent, it would have been a different story. Or if it happened 5 years ago where PLR was only 81 percent, the impact on the Fund would have been much worse,” he added.
Still, he admitted that they expect a 20-percent drop in housing loan takeouts this year due to the impact of the lockdown.
With the expected plunge in housing loans to P76.32 billion, this would be below their 2020 revised target of P95.4 billion.
Housing loan releases in April plummeted by 77 percent to P0.88 billion from P3.77 billion in March. Housing loans for January and February amounted to P5.49 billion and P6.51 billion, respectively.
For the first quarter, Pag-ibig Fund exceeded its P15.75-billion target as it posted P15.77 billion during the period.
In 2019 housing loan releases also reached a record P86.7 billion, a 15-percent surge from P75.3 billion in 2018.
“Because of the pandemic, we lost 2.5 months of takeouts. It’s 2.5 months that we will never recover. That’s around 21 percent of lost time (2.5/12). At 20 percent drop in our HL takeout target, we’re looking at P76.32 billion for 2020, which is lower than last year’s P86.7billion takeout,” he said.
Thus, he said they allocated P10 billion for House Construction Financing Line Program to serve as bridge financing facility for their accredited developers.
“This way, our partner-developers can continue to produce socialized and low-cost housing units for our members. The huge demand for housing won’t go away due to this pandemic anyway,” he said.
calamity loans
On the other hand, he said they expect to hit their P56.2-billion target for short-term loans— combined calamity loans and multipurpose loans—as they see a significant increase in calamity loan availments starting next month.
In April, short-term loan availments amounted to only P0.43 billion, an 87-percent drop from March’s P3.33 billion due to the lockdown. For the first quarter, Pag-ibig fell short of its P12.88-billion target for short-term loan availments, as it recorded only P11.61 billion in actual availments for the said loan during the period.
“As for short-term loans, we expect a huge spike in calamity loan availment starting June 1. Meaning, we’d probably achieve our target despite the 2.5 months of ECQ/MECQ. It’s timely that our online STL (Calamity and Multipurpose Loans) Filing System will be ready by [this] week. This way, members don’t have to submit their loan applications physically,” he said.
“With the expected spike in calamity loan applications, it’s likely that we’d hit the said target,” he added. Bernadette D. Nicolas