P500 billion loans at risk of default

MANILA, Philippines – Billions of pesos worth of loans are at risk of ending up in default due to the devastation wrought by tropical storm “Ondoy” and typhoon “Pepeng.”

Bangko Sentral ng Pilipinas officer-in-charge Nestor Espenilla Jr. said the estimated retail loan portfolio affected in calamity areas is about P500 billion or 24 percent of the total banking industry’s loan portfolio of P2.3 trillion.

“The initial estimate of the overall loan exposure in areas affected by Ondoy and Pepeng is more than P500 billion. Of course not all of that will be affected but even if you look at percentages, maybe one percent is already P5 billion,” Espenilla told reporters on the sidelines of the 52nd Charter Anniversary forum of the Rural Bankers Association of the Philippines.

Ondoy (international code name Ketsana) killed more than 300 people as floods swamped 80 percent of Metro Manila on Sept. 26, while Pepeng has so far killed more than 100 people and is currently devastating farming areas in northern Luzon, particularly Pangasinan.

Espenilla pointed out that both individual loans as well as loans to small companies and agri-industry are likely to end up in default due to the widespread damage from the two weather disturbances.

“It is hard to tell, it is too soon to tell at this time. The P500 billion is the estimate of retail loan portfolio affected in the calamity areas,” he said.

The National Capital Region or Metro Manila, which experienced deadly flooding at the height of Ondoy, accounts for about 30 percent of the country’s domestic output as measured by the gross domestic product.

Dow Jones Newswires quoted Espenilla as saying that the BSP is considering a proposal that will allow banks to stagger over five years the booking of loan losses from the storms.

Last Thursday, the central bank’s Monetary Board decided to earmark P5 billion in special rediscounting budget to help small and medium enterprises severely affected by Ondoy and Peping.

The BSP also said in a statement that the MB decided to allocate additional rediscounting loans as nearly 98 percent of its P60-billion rediscounting budget has already been utilized.

The board also decided to liberalize the guidelines on collaterals by including extended or restructured loans among the acceptable rediscountable papers. Banks have until March 31 next year to apply for special rediscounting lines and up to Dec. 31 to avail of these loans that could be renewed based on the original terms of the loan not exceeding five years.

Existing loans to bank clients in affected areas will also be excluded from the computation of past due ratios of banks if such loans are restructured or given relief.

Furthermore, the general loan loss provision for restructured loans of borrowers in affected areas would be reduced to one percent from five percent. The penalties for delays in the submission of supervisory reports have also been suspended.

Banks would also be allowed to provide financial assistance to their officers and employees affected by the calamity on top of the existing BSP-approved Fringe Benefit Program.

The central bank also granted rediscounting banks in affected areas a 60-day grace period to settle outstanding rediscounting obligations as of Sept. 28 with the BSP.

It also allowed banks to restructure with the BSP the outstanding rediscounted loans of borrowers affected by the calamity.

Areas affected by the calamity aside from Metro Manila are Mountain Province, Ifugao and Benguet, Pangasinan, La Union, Ilocos Sur, Isabela, Quirino, Nueva Vizcaya, Aurora, Nueva Ecija, Zambales, Pampanga, Bulacan, Tarlac, Bataan, Cavite, Laguna, Batangas, Rizal, Quezon, Mindoro Occidental, Mindoro Oriental, Marinduque, Catanduanes, Camarines Norte and Camarines Sur.

Espenilla said this was the fifth time that the central bank has extended relief measures after typhoons “Cosme,” “Frank,” “Milenyo,” and “Reming.” –Lawrence Agcaoili (The Philippine Star)