THE Bangko Sentral ng Pilipinas (BSP) has issued new guidelines to ensure that its supervised financial institutions, or BSFIs, take a more flexible and systematic approach to modifying the terms and conditions of loan agreements for borrowers who have been significantly impacted by the Covid-19 pandemic.
According to the central bank official, loan modification should be aimed at giving long-term support to creditworthy borrowers who are having financial difficulties in order to improve overall loan quality and contribute to broader economic recovery.
“In this respect, BSFIs should establish prudent criteria in assessing and modifying the loan terms and conditions. BSFIs should also monitor the changes of the risk of default of the concerned borrowers at both the portfolio and individual levels as new information emerges as well as evaluate the effectiveness of the extended relief measure,” Fonacier emphasized.
Modified loans may be classed as Stage 1, 2 or 3 for the purposes of computing the ECL, she added. The classification will be based on an assessment of the borrowers’ financial distress and their capacity to repay the loan in full under the altered terms.
The Bangko Sentral official also said loans that have been adjusted to assist borrowers who are suffering financial difficulties as a result of the pandemic should not be immediately classified as credit-impaired, which would result in the accounts being classified as nonperforming. BSFIs must examine the borrower’s repayment capabilities, revised cash flows and financial position holistically.
BSFIs should also create sound criteria for assessing a borrower’s repayment capacity, as well as implement suitable procedures, to ensure that the evaluation is implemented consistently across all borrowers, she added.
“In cases when the modification of the terms of the loan would involve capitalization of interest, the resulting amount should not be more than the original principal amount of the loan,” Fonacier said.
She went on to say that the guidelines will be in effect until Dec. 31, 2022 and that BSFIs will keep track of all borrowers whose loans have been modified as a result of the Covid-19 pandemic, including risk classification, staging and provisioning, in order to closely monitor, manage and report changes in the risk of default on these loans at both the portfolio and individual levels.Internet Explorer Channel Network