MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) has agreed to give banks some regulatory relief to facilitate borrowing at a time when the economy is bracing against the impact of the global recession.
BSP Governor Amando M. Tetangco Jr. told reporters over the weekend that the Monetary Board has decided to ease the rule that required borrowers to submit financial statements that have been audited by accredited external auditors.
Tetangco said the rule would be suspended for one year to allow time for the accreditation of more external auditing firms nationwide. After one year, he said the rule would be reinstated.
This rule, according to Tetangco, was intended as a prudential measure to ensure that companies applying for bank loans are being properly audited and that their finances are determined to be in order by accredited auditors.
However, Tetangco admitted that there are not nearly enough accredited external auditors in the country and the BSP did not want this limitation to have the effect of discouraging lending.
“Corporate borrowers would still have to present an audited financial statement when they apply for loans, but they don’t have to be audited by accredited external auditors,” Tetangco said.
The relaxation of the rule was first requested by PNB which said that it is necessary because lending is being impeded particularly in areas where there are no accredited external auditors.
Tetangco said there were also requests from other banks to suspend this rule, at least until the relevant government agencies manage to accredit more auditing firms.
“From what we have seen, more than one third of corporate borrowers are unable to comply with this requirement because there aren’t enough accredited external auditors,” Tetangco said.
In the meantime, Tetangco said government agencies are working to expand the number of accredited external auditors.
Tetangco said the BSP, together with the Securities and Exchange Commission (SEC) and the Insurance Commission (IC) have already agreed on allowing cross-recognition between themselves.
“That means that an auditing firm already accredited by one or all of these three regulatory bodies would be acceptable as an accredited entity,” he explained. “So if a borrower has access to an auditing firm accredited by the IC, for example, he can use that audited financial statement for bank loans even if the auditing firm is not accredited by the BSP itself.”
The BSP has been trying to address initial signs that credit standards have started to tighten as banks reacted to the increased probability of defaults as the global economy sank deeper into recession.
Tetangco said the relaxation of the rule was one of the initial steps to remove factors that could discourage bank lending.
Banks also have pending requests with the BSP for even more regulatory relief beginning with the possible suspension of the mark-to-market rule and the elimination of the two percent loan loss provision.
As early as November last year, the BSP has ruled out the possibility of a blanket suspension of the mark-to-market rule but PNB earlier said bank regulators should review current conditions and reconsider it.
PNB said the loan loss provisioning requirement, on the other hand, could be eliminated since it was imposed only when the industry was burdened with huge non-performing loans (NPL) after the 1997 financial crisis.
According to PNB, the conditions have changed significantly since then, with the average industry NPL ratio now below 5 percent—dropping back to pre-1997 levels.
PNB’s original request was to be allowed until 2012 to continue accepting financial statements not concurred by accredited auditors.
Tetangco himself admitted that the banking sector was facing tougher conditions in 2009 with some consumer demand to support growth in bank lending but expansion and incomes would be affected.
Tetangco said lending growth would be weaker in 2009 as a result of the combined effects of the global economic slowdown and the risk-aversion of banks at a time of financial upheaval.
There may be some easing from the current levels as banks implement
tighter credit standards and as base effects kick in this year after last year’s double-digit growth that went well into the 20s.–Des Ferriols, Philippine Star
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