Single borrower’s limit crucial for banks — BSP

Bangko Sentral ng Pilipinas (Central Bank of the Philippines). Wikipedia photo

MANILA — The Bangko Sentral ng Pilipinas yesterday said that it is crucial for banks to have the single borrower’s limit rule citing the dangers of possible credit risks.

BSP Governor Amando Tetangco said in an email, as published in a Philippine Star report that the limit is an important rule to avoid any further risks.

“The SBL rule, which is a common global standard, is an important prudential rule that prevents dangerous credit risk concentrations that can trigger financial stability,” Tetangco said.

“We should be very careful about weakening it,” he said.

The 25-percent SBL for companies engaging in Public-Private Partnership has also been approved in December 2010,and an initial three-year period was extended before the end of 2012.

The central bank has been imposing a limit of 25 percent of a bank’s net capital to avoid any excessive exposure to a borrower or a group.

“In any case, there are alternative ways of financing big ticket projects, including accessing the capital market, the normal source of long term financing. Foreign direct investment also can play a very useful role,” Tetangco said.

“With respect to bank financing, credit risk transfer mechanisms like guarantee can also be tapped to manage SBL issues. Big loans can also be syndicated among many creditors. Banks are also boosting their capital bases anyway thereby enlarging their SBL limits,” he said