The Bangko Sentral ng Pilipinas (the Philippine Central Bank, or BSP) recently amended the existing regulations on the single borrower's limit (SBL) imposed on banks and financial institutions. The SBL is intended to prevent an overconcentration of credit risk, and imposes a ceiling on the amount of loans, credit accommodations and guarantees which a bank or financial institution can extend to a single borrower or its related entities.
Prior to the amendments, the SBL was generally twenty-five percent (25%) of the bank's or financial institution's net worth. The recent amendments relax the applicable limits, and are intended to help spur activity in the country's infrastructure and stabilise the country's petroleum supply.
Under BSP Circular No 700 (December 6 2010), the BSP established a separate cap of 25% of a bank's or financial institution's net worth for loans, credit accommodations and guarantees related to infrastructure and/or development projects under the government's public-private partnership (PPP) programme.
The separate cap is intended to encourage diversified conglomerates to bankroll priority projects under the PPP programme, under which various large-scale projects with high funding requirements (such as power plants, gas pipelines, toll roads, airports and railways) are undertaken by the government in partnership with the private sector.
On February 9 2011, the BSP issued Circular No 712 which increased the SBL by 15% of a bank or financial institution's net worth for loans, credit accommodations and guarantees granted to finance oil importation of oil companies. The additional cap is intended to support the oil industry, which is a vital industry with high funding requirements, and to ensure a stable supply of petroleum products in the country.
The separate SBL cap on borrowings related to the PPP programme will only be allowed for a period of three years from December 28 2010 while the additional cap for borrowings by oil companies shall only be allowed for a non-extendible period of two years from March 3 2011. The time limit under both circulars is intended to encourage eventual resort to the capital markets for funding needs.
Finally, banks and quasi-banks are mandated to consider the credit risk concentration arising from total exposures to oil companies or borrowers pertaining to PPP projects in their internal assessment of capital adequacy relative to their overall risk profile and operating environment, and may be required to put up additional capital for these increased borrowings.
Arlene M Maneja
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