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BSP Fine Tunes Definition of Past Due and Non-Performing Exposures

01.20.2017

The Monetary Board (MB) has approved the amendments to the regulatory definitions of past due and non-performing exposures, including restructured loans, to align with predominant global conventions and to achieve internal consistency of classification across all types of loan products regardless of payment schedule.  These refined definitions are part of a series of reforms instituted by the BSP to promote a more responsive and consistent regulatory approach for BSP supervised financial institutions (BSFI). The revised definitions are likewise intended to complement the BSFIs’ credit risk management as part of their internal credit rating and classification systems.

Under the new definition, the general rule is that an account that does not pay on contractual due date is deemed past due the following day.  However, BSFIs are allowed to provide for a cure period policy on a credit product-specific basis within which clients may be allowed to catch up on a late payment without being considered as past due, provided that the cure period policy is based on actual collection experience and reasonable judgment that support tolerance of occasional payment delays.   

On the other hand, an account or exposure is considered non-performing, even without any missed contractual payments, when it is deemed impaired under existing applicable accounting standards, classified as doubtful or loss, in litigation, and/or there is evidence that full repayment of principal and interest is unlikely without foreclosure of collateral, in the case of secured accounts. All other accounts, even if not considered impaired, shall be considered non-performing if any contractual principal and/or interest are past due for more than ninety (90) days, or accrued interests for more than 90 days have been capitalized, refinanced, or delayed by agreement.

Shown below is a comparison of the revised against the existing guidelines based on the mode of payment:

 

COMPARISON WITH THE OLD POLICY BASED ON THE MODE OF PAYMENT     

 
New Policy  
Old Policy

Mode of Payment

Past Due

NPL

Past Due

NPL

Monthly Installment

1 day after due date excluding cure period, if any

Past due for more than 90 days

3 installments missed

 Installments unpaid for more than 90 days

Quaterly/Semestral/ Annual  

1 installment missed  

Past due for more than 30 days 

 

At Maturity  

Not paid at maturity  

 

Daily/weekly/semi-monthly  

1 day after contractual due date; 11th day if with cure period  

Arrears is 10% of O/S balance  

Upon past due 

Microfinance (PAR) 

1 installment  

Upon past due 

 

The revised policy also provides a clearer basis for a restructured loan as its definition now includes the purpose for restructuring, that is to lessen the financial difficulty of the borrower and maximize collection and realizable economic value on an obligation within a reasonable period of time.

To facilitate transition, BSFIs are given until 31 December 2017 to make the necessary revisions in their management information and reporting systems relating to their past due and non-performing exposures. Effective 01 January 2018, past due and non-performing exposures shall be mandatorily reported in accordance with the requirements of the revised policy.

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