The Bankers Association of the Philippines (BAP) agreed with the Bangko Sentral ng Pilipinas (BSP) that a yearlong debt moratorium might put the banking industry at risk, endorsing a 30-day grace period, instead.
In a news statement released on Friday, the bankers’ group proposed the adoption of a month-long moratorium on loan principal and interest payments in areas under enhanced community quarantine and modified ECQ.
“We have to ensure the stability and robustness of the banking system in order to help our economy pave the way towards recovery,” BAP Managing Director Benjamin Castillo said.
This, as BAP stressed that the “longer moratorium will impact the liquidity of the financial system and may put certain banks at risk.”
BSP Governor Benjamin E. Diokno said recently that the proposed period on debt moratorium is seen hurting the capitalization of the banks given that its liquidity may be affected as well. He said a “sound banking system” is necessary to maintain affirmations in the Philippines’s credit ratings.
The House of Representatives recently approved on third and final reading the proposed P162-billion Bayanihan to Recover as One Act or the Bayanihan II, which includes extension of loan settlement of up to one year for payments falling between March 16 and December 31.
Fintech Alliance.ph, in a position paper submitted to the bicameral committee this week, offered the same alternative—a 30-day grace period—stressing that the current proposal is deemed “excessive.”
The 365-day grace period would make it difficult to extend credit—due to potential slow inflow of liquidity to fund borrowings—at a time when individuals and small businesses are seeking funding for emergency expenses or capital requirements, the group said.
Fintech Alliance.ph said that a yearlong debt moratorium would not be sustainable for financing and lending companies as this can reduce available and affordable credit, especially to the unbanked sector, which the fintech industry primarily serves.
“It is imperative that the Philippine government carefully balance the immediate but short-term relief granted to borrowers against the long-term effects on the stability and resurgence of the Philippine financial system,” the group added.
According to the latest BSP data, the banking system’s loan portfolio stood at P10.82 trillion as of end-June, which is 5.15 percent higher than P10.29 trillion notched in the same period last year. Gross nonperforming loans (NPL), meanwhile, grew by nearly 27 percent or P273.6 billion in the first half year-on-year.
The Central Bank in May shared that the financial system is expected to book P556.6 billion worth of NPLs in 2020 amid the economic downturn. This is equivalent to 5 percent in NPL ratio—portion of NPL to total loans—which is more than double of what the sector has been dealing with in the recent years.
The banking industry might not be able to recover 50 percent to 80 percent, or P278.3 billion, to P445.28 billion, of the estimated bad loans, BSP added.