BSP bans flat rates on loans

Published by rudy Date posted on July 3, 2012

MANILA, Philippines – Banks and other lending institutions are no longer allowed to offer flat interest rates on loans as the Bangko Sentral ng Pilipinas (BSP) implements circulars updating rules of a 1963 law that enforces transparency in credit lending.

BSP Deputy Governor Nestor Espenilla said yesterday the new circulars want to establish discipline and responsibility among credit granting institutions.

“Interest should be based on outstanding balance of a loan. In reality however, what we have observed is that interest rates are charged to initial balances, even if it has declined,” Espenilla said.

“Flat rates are no longer allowed since they tend to confuse the public,” he added.

A flat rate is when lenders charge a fix interest rate to a particular loan within a certain maturity. Espenilla said this tend to be “appealing” to borrowers, especially since they are “easy and seems to be more understandable” than a declining interest rate.

A declining rate, he explained, is when the interest is based on the balance of the loan plus all the fees and charges computed every paying period. In this way, Espenilla said a lender is being transparent as to the true cost of the loan.

“But the loan is not necessarily more expensive. You are just being transparent,” Espenilla explained.

He cited a case when a borrower of P10,000, with a term of 13 weeks, was charged with 1.5 percent flat monthly interest rate plus a separate three percent rate as “other charges.” The P803.85 weekly amortization will be the same for a P10,000 loan with a term of 13 weeks and has a declining interest rate of 4.77 percent.

In the second instance, “the total cost of the loan involved the interest, fees, service charges, discounts, and all others incident to the extension of credit,” Espenilla said, noting that fees and charges are part of the “mandatory disclosures” provided under the BSP Circular 755.

“The challenge here is really the enforcement. We made a comprehensive effort in drafting these rules and now our efforts will shift to making sure that these regulations will stick toward enforcements,” Espenilla said.

Lending institutions that will be found not following the new rules will be sanctioned accordingly, he added. –Prinz P. Magtulis (The Philippine Star)

June 2025

Philippine Environment Month!
“Action for Nature, for the Future!”


Invoke Article 33 of the ILO Constitution
against the military junta in Myanmar
to carry out the 2021 ILO Commission of Inquiry recommendations
against serious violations of
Forced Labour and Freedom of Association protocols.

Accept National Unity Government (NUG)
of Myanmar.  Reject Military!

#WearMask #WashHands #Distancing #TakePicturesVideosturesVideos

Time to support & empower survivors. Time to spark a global conversation. Time for #GenerationEquality to #orangetheworld!

Monthly Observances:

  1 Jun – World Day of Parents

  5 Jun – World Environment Day 

  7 Jun – World Food Safety Day 

  8 Jun – World Oceans Day

12 Jun – World Day Against
Child Labour

15 Jun – World Elder Abuse Awareness Day 

16 Jun – International Day of Family Remittances 

17 Jun – World Day to Combat Desertification and Drought

20 Jun – World Refugee Day 

25 Jun – Day of the Seafarer 

27 Jun – Micro-, Small and Medium-sized Enterprises Day

 

Daily Observances:

First Saturday of July:
International Cooperative Day
in the Philippines

Categories