The Monetary Board (MB), the policy-making body of the Bangko Sentral ng Pilipinas (BSP), decided on 7 September 2006 to exempt loans, other credit accommodations and/or guarantees granted by government banks to government-owned or controlled corporations (GOCCs) for certain priority undertakings from the ceilings (individual and aggregate) on unsecured loans to directors, officers, stockholders and their related interests (DOSRI). These include loans for: (1) relending to other participating financial institutions (PFIs) or end-users pursuant to the National Government’s lending programs; and (2) rediscounting facilities and guarantee programs for loans granted to the agricultural sector and micro, small and medium enterprises (MSMEs).
Under existing regulations, total secured and unsecured DOSRI loans to GOCCs shall not exceed the individual ceiling which limits the total outstanding loans to each of the bank’s DOSRI to an amount equivalent to their respective unencumbered deposits plus the book value of their capital contribution in the lending bank; and the aggregate ceiling which limits total outstanding loans to all DOSRI to an amount equivalent to 15 percent of the bank’s total loan portfolio or 100 percent of net worth, whichever is lower.
Furthermore, total unsecured loans to each of the DOSRI shall not exceed 30 percent of their respective total loans, other credit accommodations and/or guarantees, while total unsecured loans to all DOSRI shall not exceed 30 percent of the aggregate DOSRI ceiling or the outstanding loans, other credit accommodations and/or guarantees granted to all DOSRI, whichever is lower.
Due to these regulatory limits, government banks like the Development Bank of the Philippines (DBP) and Land Bank of the Philippines (LBP) felt hampered in providing credit to GOCCs tasked with carrying out the National Government’s policy objectives of poverty alleviation, employment generation, equitable distribution of income and wealth, and promotion of the general welfare.
Under the revised DOSRI rules, loans granted by government banks to GOCCs to service the credit requirements of agricultural enterprises, particularly in the countryside, and of MSMEs are now excluded from the computation of the 30 percent ceiling (individual and aggregate) on unsecured loans. However, such unsecured loans are still counted for purposes of reckoning compliance with the individual and aggregate ceilings on total loans, other credit accommodations and/or guarantees to DOSRI. Likewise, unsecured DOSRI loans will continue to be deductible from regulatory capital for capital adequacy calculation purposes. This is to ensure that National Government objectives can be pursued within the context of financially viable banking institutions and without sacrificing prudential requirements, as well as conformity with international best practices.