The Bangko Sentral ng Pilipinas (BSP) is proposing changes to the rules governing the Single Borrower Limit (SBL) in terms of minimum capital and credit exposure.
The BSP wishes to modify SBL and the definition of capital “for the purpose of determining compliance with various prudential limits and requirements”.
In the draft circular, SBL’s credit exposure limits will have new definitions of net worth that refer to the minimum capital required. The changes relate to the transfer of credit risk, guarantees and credit derivatives.
The BSP said the capital in the SBL rules will be the same as the undepreciated capital and surplus, combined capital accounts and net worth. The new definition includes paid-up capital intact, paid-up surplus, retained earnings and undivided profits when determining the minimum capital requirement.
The BSP wishes to add to the capital deposits for the subscription of shares in the form of equity, and other capital instruments that are released, with a maturity of at least five years, redeemable and can be converted into ordinary shares or written off.
The draft circular, on the other hand, will deduct from treasury stock, the unrecognized provision for probable losses, the outstanding unsecured credit and the DOSRI (directors, officers, shareholders and their related interests).
The BSP is currently applying a higher SBL of 30% until the end of December of this year, as part of the credit-related regulatory relief measures for all financial institutions supervised by the BSP (BSFI) affected by the health crisis of the COVID-19.
Before the pandemic, the SBL represented 25% of the intact capital of a bank. From time to time, the BSP increases the SBL cap or grants separate SBLs but as a rule, banks and non-banks must spread their risk.
The draft circular modifying the definition of capital for SBL is currently being circulated among the BSFIs for comments and reactions until November 12.
BSP Governor Benjamin E. Diokno said last month he could extend the upper SBL beyond the end of 2021.
The BSP of March 31 of last year, with the COVID-19 pandemic in its early months, increased the SBL from 25% to 30% as a further operational relief measure. So far, the upper SBL has been extended for the third time.
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