BSP rejects 365-day moratorium on loan payments

THE Bangko Sentral ng Pilipinas (BSP) rejected a provision under the Bayanihan 2 measure directing financial institutions to grant borrowers a 365-day grace period for loan payments.

“While we recognize the noble intentions behind the adoption of a 365- day moratorium on loan payments, the said policy, while having the best interest of the public in mind, may result in unintended consequences that will severely affect the banking industry, the financial system, and the economy,” BSP Governor Benjamin Diokno said during a press briefing on Thursday.

He warned that the proposed moratorium “will significantly strain the liquidity and capital position of banks.”

Banks’ inability to service withdrawal may trigger a bank run and will undermine the confidence of the public in the banking system, Diokno added.

He also emphasized that a longer grace period for loan payments will also limit the availability of credit in the country as banks adopt stricter underwriting standards or completely deny credit to some sectors, including the micro, small, and medium enterprises.

“Adopting a 365- day moratorium on loan payments will pose serious risks to the soundness of banks and financial stability in general,” the BSP chief said.

Source: TheManila Times