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Thursday, March 28, 2024

BSP relaxes credit limits on infra projects

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The Monetary Board, the policy-making body of Bangko Sentral ng Pilipinas, said Thursday it approved separate credit limits for companies doing stand-alone projects under the ‘Build, Build, Build’ program of the government.

The Bangko Sentral said in a statement the move would support the government’s massive P8.4-trillion infrastructure program that was seen to spur economic activities nationwide. 

“The Monetary Board of the Bangko Sentral ng Pilipinas amended regulations providing entities created as vehicles to implement major projects [often Special Purpose Entities ] with a separate single borrower’s limit,” the BSP said.

The SBL is currently at 25 percent of a bank’s/quasi-bank’s net worth. 

“Such SPEs were given their own separate SBL in consideration of the independence they usually enjoy under project finance schemes. Under these schemes, SPEs are ring-fenced by appropriate legal structures, operational set up, and controls so that assets and cash flows of SPEs remain separate from those of their sponsors, shareholders, and other related parties,” it said.

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The BSP said this policy reform was premised on banks/quasi-banks’ understanding of risks of such exposures. It said lending to such dedicated SPEs should be subject to certain conditions to ensure effective risk monitoring and management. 

“It is also required that purposes of project finance loans be in line with the government’s priority programs and projects. Lending banks/QBs must also ensure standard prudential controls. These may include pledges of borrowers’ shares, assignments of borrowers’ assets, revenues, cash waterfall accounts and project documents,” ir said.

The BSP said to curb excessive credit risk-taking, banks and quasi-banks should take into account their total project finance exposures in managing large exposures and credit risk concentrations. 

“These prudential controls shall likewise apply to credit extended by banks/QBs to their SPE subsidiaries and affiliates involved in project finance activities,” it said.

The BSP issued Circular No. 976 which requires banks to submit more granular reports on real estate exposures including project finance loans starting June 30, 2018.

“This will aid the BSP in crafting more informed and calibrated policy decisions in areas that require careful supervisory action,” it said.

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