Banks Should Be More Flexible in Assessing Borrowers’ Financial Difficulties – Manila Bulletin


Despite the numerous regulatory relief measures granted to all banks to cope with the impact of the pandemic, banks are not granting the same reprieve to new borrowers and those whose existing loans have been modified or restructured, even after establishing that the financial difficulties of these borrowers are only temporary. and related to containment.

In a note that will be implemented until the end of 2022, the Bangko Sentral ng Pilipinas (BSP) wants its supervised financial institutions (BSFI) to have a “more flexible and systematic approach” when modifying the terms and conditions of contracts. borrowers during the pandemic, especially borrowers whose cash flow problems will return to normal when mobility restrictions are lifted.

The BSP issued the new guidelines because with the continuing economic uncertainty associated with the pandemic, the income, cash flow and financial position of households and businesses will continue to be affected by the COVID-19 issues.

“In this regard, BSP expects BSFIs to provide relief measures to their borrowers in order to reduce their debt burden and ultimately contribute to economic recovery. These relief measures include, among other things, amending the terms and conditions of loan agreements to reflect changes in the borrowers’ projected cash flows. and improve the likelihood of a complete collection, ”BSP said.

BSP Deputy Governor Chuchi G. Fonacier, who signed BSP Memorandum No. M-2021-056 on Thursday, October 21, said the loan modification “should be aimed at providing sustainable support measures to creditworthy borrowers. experiencing financial difficulty to help promote the global loan. quality and contribute to a broader economic recovery.

BSP Deputy Governor Chuchi G. Fonacier

Instead of managing their Expected Credit Losses (ECLs), what is happening is that most banks, especially large lenders and savings banks, have strict, inflexible and even unreasonable requirements on borrowers. affected by the public health crisis.

Fonacier said that to guide the treatment by the BSFI of loans restructured for To measure ECL, banks must establish “prudent criteria” for evaluating and modifying the terms and conditions of loans. The note provides guidance on the ECL treatment of loans, in particular consumer loans, and on the classification of accounts as bad debt.

“The classification of modified loans at stage 1, 2 or 3 for the purposes of determining the ECL should be based on the assessment of the extent of borrowers’ financial hardship and their ability to repay the loan in full on the basis revised terms, ”she said.

The new guidelines on the regulatory treatment of restructured loans for the management of ECLs will be in effect until December 31, 2022.

Based on the guidelines, when assessing any significant increase in credit risk, banks should change the contractual terms of the loan in a flexible and systematic manner. approach and “monitor the evolution of the default risk of the affected borrowers at the portfolio and individual level as new information emerges, as well as to assess the effectiveness of the extended relief measure”.

The classification of modified loans into stages (Steps 1, 2 and 3) to determine the ECL will be based on the assessment of the extent of borrowers’ financial hardship and their ability to repay the loan in full based on the revised terms. , said the BSP.

The BSP also said that restructured loans should not automatically be considered “impaired credit” and classified as non-performing loans.

The central bank said BSFI should “comprehensively assess” borrowers’ repayment capacity, revised cash flows and financial condition, especially for borrowers whose the financial difficulties are only temporary or “it can reasonably be expected that the capacity to pay will return to levels allowing full payment once the COVID-19 restrictions are lifted”.



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