Philippine regulator eases lending rules to spur infrastructure investment

Banks can roll out more loans for project financing.

The Philippine Monetary Board has selectively eased lending restrictions to support the financing of priority projects under the Philippine Development Plan (PDP).

Under the amended regulations, loans extended to directors, officers, stockholders, and related interests( DOSRI) for project finance are exempt from complying with the ceiling on unsecured loans during the pre-operational phase of the project.

The said ceiling will only be applied once the project becomes operational. The revised rules also increased the prescribed limits for loans granted to subsidiaries and affiliates undertaking projects under the PDP
Exposures to subsidiaries and affiliates in the projects shall be subject to higher individual and unsecured limits of 25% and 12.5% of the net worth of the lending bank, respectively, as compared with the ceilings previously set at 10% and 5%.

Banks, however, are required to adopt strong measures designed to safeguard their interests, which may include, but are not limited to, pledge over the borrower’s shares, assignment over the borrower’s assets, assignment of all revenues and cash waterfall accounts, and assignment of project documents.

The new policy also amended the capital treatment of exposures to affiliates. Previously, the unsecured loans granted to affiliates are deducted from qualifying capital for purposes of determining the capital adequacy ratio.

The revised rules provide that both the secured and unsecured loans granted to affiliates will now be risk weighted.

“The policy change is consistent with the BSP’s thrust to allow BSP supervised financial institutions to take on risks based on their risk bearing capacity and quality of risk governance. BSFIs are expected to have a good understanding of the nature of the projects under the PDP/PIP, the nuances of the financing needs of these initiatives, and the risks arising from the exposures,” the central bank said in a statement.