The COVID-19 pandemic has highlighted the significance of a healthy, stable, and most of all, resilient banking system in the economic recovery. This resilience has served as one of the economic lifelines in providing financial and credit support to the country, most importantly to the hard-hit sectors of our economy such as households and micro, small and medium enterprises (MSMEs).
The BSP’s regulatory relief measures
In response to the challenges posed by the COVID-19 pandemic on the financial industry, the Bangko Sentral ng Pilipinas (BSP) issued regulatory and operational relief measures to assist the BSP Supervised Financial Institutions (BSFIs) to endure the crisis and to enable them to focus their limited resources toward supporting the financing requirements of households and business enterprises.
These time-bounded measures provided incentives for BSFIs to extend financial relief to their borrowers, incentivized bank lending, promoted continued access to credit/financial services, and supported continued delivery of financial services. The relief packages strived to address the critical requirements of the economy, while at the same time, ensured that financial stability would not be compromised.
Extension of financial relief to borrowers
At the onset of the COVID-19 pandemic, BSFIs were given regulatory relief to enable them to grant equivalent financial relief to their borrowers in the form of more flexible and favorable lending terms or restructuring of loan accounts. These include allowing deferred recognition of past due and non-performing loans and staggered booking of allowance for credit losses of affected loan accounts.
The BSP also implemented interest rate caps on credit card transactions to ease the financial burden of consumers and MSMEs amid the COVID-19 pandemic.
Incentivize lending
The BSP’s prudential measures also include initiatives to encourage lending to the MSME sector and critically affected large enterprises. These measures aim to ease certain prudential requirements of banks to allow them to support financing needs of rural-based clients and MSMEs. This would in turn enable them to carry on with their business during the COVID-19 crisis, as well as hasten recovery and sustainability of their operations during the post-crisis period.
Relative to this, the BSP reduced the credit risk weights of loans granted to MSMEs. Banks were allowed to use loans granted to MSMEs as compliance with the reserve requirements so they could tap on their demand deposit account with the BSP. The BSP also deferred the implementation of the revised risk-based capital adequacy framework and reduced the Minimum Liquidity Ratio applicable to stand-alone thrift banks, rural banks, and cooperative banks.
Data as of the reserve week ending June 3, 2021 show that banks utilized P181.6 billion in MSME loans as alternative compliance with the reserve requirements. This indicates that banks have continued to grant new MSME loans or re-finance outstanding MSME loans of their clients since the start of the COVID-19 pandemic.
Promote continued access to financial services
Policies were put in place to ensure that retail clients, who were affected by the community quarantine arrangements, can still access formal financing channels through the use of information technology. The BSP relaxed the Know-Your-Customer requirements, particularly the presentation of valid IDs by retail clients, including micro-business owners, to facilitate their access to formal financing channels until Dec. 31, 2021.
Moreover, fees related to the grant of license or authority to provide Advanced Electronic Payments and Financial Services were temporarily waived until Dec. 31, 2021. This is to encourage BSFIs to provide safe, efficient, and reliable digital channels that support critical payment use cases such as social benefit transfers, payments to merchants or billers including the government, payments to suppliers, and remittances.
Digital banking developments
The COVID-19 pandemic has accelerated the use of digital payments under the “New Economy” environment.
Parallel to this, the BSP has designed a three-year Digital Payments Transformation Roadmap and approved the inclusion of “digital banks” as a distinct classification of banks and the corresponding guidelines for their establishment.
These new banks offer financial products and services that are processed end-to-end through a digital platform and/or electronic channels with no physical branches. They are envisioned to address the long-standing barriers to financial inclusion and onboard more Filipinos in the formal system especially during and post-COVID-19 era.
Since the release of the BSP’s regulatory framework for digital banks, several proponents have expressed interest and actual intent to apply for a digital banking license in the country. As of June 4, 2021, the Monetary Board has approved the applications of three banks and is now evaluating four more applications, which includes three new players.
The BSP is also developing the second set of regulations that will clarify applicability of regulations on capital and liquidity, corporate and risk governance, risk management, and monetary operations to digital banks.
Finally, the central monetary authority is crafting guidelines on the adoption of a marketplace banking model. Anchoring on the implementation of the Open Finance Framework, the BSP anticipates the emergence of new business models and arrangements, which will further drive innovation and bring more value to customers.