BSP relaxes SBL, DOSRI rules anew
To free up bank funds for priority projects
The Bangko Sentral ng Pilipinas (BSP) has removed the caps and regulatory limits on banks’ loans to their subsidiaries and affiliates guaranteed by multilateral financial institutions (MFIs) to expand funds available for infrastructure projects, among other priority financing.
BSP Governor Nestor A. Espenilla Jr. yesterday said the revised rules will free up resources to finance big-ticket projects such as those necessary for economic development. “It will enable concerned banks to increase their loan budget available for high priority projects (such as infrastructure) that attract MFI guarantees,” he said.
Since 2013, loans guaranteed by MFIs are excluded from the Single Borrower’s Limit (SBL) and ceilings on a Director, Officer, Stockholder and their Related Interests (DOSRI) under current rules.
MFIs are the International Finance Corp. of the World Bank, the Asian Development Bank, and the Credit Guarantee and Investment Facility.
The BSP thinks amending the rules now on MFI-guaranteed loans to banks’ units will encourage a level playing field for bank borrowers “through consistent application of regulatory limits on credit.”
All loans guaranteed by MFIs where the government is a participant or a shareholder, are now exempted from the regulatory limits on banks’ loans to their subsidiaries and affiliates. The amended regulations basically extend this exclusion to banks’ loans to subsidiaries and affiliates, a statement from the BSP explained. “This is to recognize that the mitigation of credit risk similarly applies to all MFI-guaranteed loans regardless of whether the borrower is a third party, DOSRI, or a subsidiary or affiliate of the bank.”
The BSP added that the “rationalization of prudential measures is expected to result in greater flexibilities in financing the country’s large-scale projects for developmental purposes. In addition, the credit risk mitigant offered by MFIs will provide added cushion for the credit risk exposures of the banking system.”
Under Section 36 of the General Banking Law of 2000, the BSP is authorized to implement restrictive DOSRI rules.
The DOSRI individual limit or ceiling is 10 percent and five percent for unsecured limits, and aggregate 20 percent limit on loans, other credit accommodations and guarantees granted by banks to their subsidiaries and/or affiliates.
The SBL, in the meantime, limits lending of a bank to a single client to only 25 percent of their capital. As a general rule, banks should spread their risks. By capping lending to a single client, the potential loss of a bank from that particular’s client failure will be limited.