BORROWERS in Boracay Island who will be affected by the six-month closure starting on April 26 are urged to ask their banks to restructure their loans.
In a Viber message to the BusinessMirror, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. advised borrowers “it’s best to engage the bank proactively, rather than wait for the loan to deteriorate and become past due.”
He added: “BSP rules actually allow for flexibility in situations like this. Banks concerned may ask BSP collectively if they have specific ideas beyond what rules already allow.”
The “premise” of a loan restructuring for a borrower in Boracay, whose income will likely be affected by the closure, is “force majeure. And restructuring is a good approach given the time-bound nature of the problem,” he said. President Duterte has ordered the island to be closed from April 26 to October 26, ostensibly to give way for its rehabilitation.
If the bank is willing to restructure the loan “to give relief to its borrower due to force majeure,” Espenilla stressed, “it can invoke Circular 941 [Series of 2017] so that the loan doesn’t have to be downgraded and specific provisioning set aside.”
This developed as BDO Unibank Inc., which has two full-service branches and three ATM stations in Boracay, confirmed that it has loan exposures on the island.
But Eduardo V. Francisco, president of BDO Capital and Investment Corp., said the bank was keen to restructure the loans of the borrowers in the popular resort-island, whose cashflows will be affected by the closure.
“In general,” Francisco said in a text message, “yes, we will work with our borrowers.” BDO declined to reveal its level of loan exposure in the island, and whether these were in the form of production or consumer loans.
Other banks on Boracay include Bank of the PhilippineIslands, Asia United Bank, Philippine National Bank, Metropolitan Bank and Trust Co. Rizal Commercial Banking Corp., and Sterling Bank. Many of these banks also have branches in Kalibo, the capital of Aklan.
While no data was available online for loans to the tourism sector, specifically in Boracay or Western Visayas, latest statistics from the BSP showed total loans to the accommodation and food-services sector expanded by 19.33 percent to P540 billion in January to April 2017, from the P452.54 billion borrowed in the same period in 2016.
For her part, BSP Managing Director for Financial Supervision Research and Consumer Protection Sub-Sector Lyn I. Javier explained that Circular 941 provides the definition of nonperforming loans and past due loans, and the provision of restructured loans.
“A bank and borrower can restructure if the [loan] account is a performing account. Banks will have to consider the borrower’s payment history, if he is a good borrower,” she added. Also, she added, the borrower must be able to show when Boracay is finally open and business returns to normal, that he or she will be able to make the loan payments.
Circular 941 defines restructured loans as “loans and other credit accommodations, the original contractual terms and conditions of which have been modified in accordance with a formal restructuring agreement that sets forth a revised schedule of payments for the purpose of lessening the financial difficulty of the borrower and maximizing collection and realizable economic value on an obligation within a reasonable period of time. The modification may include, but is not limited to, change in principal due, maturity, interest rate and other charges, collateral or other terms and conditions.”
The circular adds: “If prior to restructuring, the loans were categorized as performing, such classification shall be retained.”This means, Javier said, banks can set aside as loan provisioning, 1 percent of outstanding balance of the account, instead of the usual 5 percent under restructured loans, which may have been nonperforming before the restructuring. “The loan-loss provisions aren’t as heavy, compared to the usual restructured
loans,” she said.
Echoing Espenilla, she added it was better for the borrowers in Boracay to be “proactive and approach their banks for a restructuring, even before their loans have become past due.”
The Department of Labor and Employment (DOLE), meanwhile, said it is now closely monitoring reports of workers that will be illegally displaced because of the looming closure of Boracay Island.
Labor Undersecretary Dominador R. Say reiterated the six-month closure of the prime tourist destination is not a valid reason for employers to retrench their regular workers. “Workers who will be terminated because of the closure could go to us so we could provide them the necessary assistance in filing their illegal-dismissal complaint before the courts.”
The DOLE issued the statement after it was reported on Monday that a hotel chain in Boracay has laid off 280 newly hired workers in anticipation of the impact of the closure.
In a text message to the BusinessMirror, DOLE Region 6 Director Johnson G. Cañete said they have yet to receive complaints of retrenchment related to the upcoming closure.
Say, however, clarified Boracay workers, whose companies were permanently closed down for violating environmental regulations, or those who have no security of tenure, can be legally retrenched. Workers that will fall under these two conditions will be entitled to separation pay.
Workers who will be retained by their employers in Boracay after the six-month closure of the island can seek alternative employment for the meantime. “Once the closure ends, the affected employees will have one month to return to their employer before they are considered resigned,” Say said.
With Samuel P. Medenilla