BSP warns one-year loan payments freeze in Bayanihan 2 bad for banks

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Metro Manila (CNN Philippines, August 13) – Bangko Sentral ng Pilipinas Governor Benjamin Diokno warned that the one-year freeze on loan repayments sought in the economic stimulus bill pending in Congress could do more harm than good to the banking industry.

Speaking to reporters on Thursday, the central bank chief said the financial sector could be badly hit should this provision under the Bayanihan to Recover as One Act is signed into law.

"While we recognize the noble intentions behind the 365-day moratorium on loan payments, the said policy... may result in unintended consequences that will severely affect the banking industry, the financial system, and the economy," Diokno said.

House Bill 6953 approved by the House of Representatives on Monday directs all banks, financing firms, property developers, and insurance companies, as well as public and private credit-granting units to implement a 365-day grace period or staggered payment arrangements for all loans, amortizations, and even credit card payments without the borrower incurring additional charges.

Loan terms may be extended for another year to give time for borrowers to recover their finances following the series of lockdowns meant to contain COVID-19 infections.

Diokno added that this could pose a funding crunch on banks and could put "significant strain" on the liquidity and capital positions of lending institutions, which rely on cash flows to keep lending activities going. He feared this could even trigger a bank run and undermine confidence in the banking system.

With limited cash, banks may also be forced to become more stingy in granting credit to new or repeat borrowers, including struggling MSMEs which are considered risky clients.

The Bayanihan to Heal as One Act provided a 30-day grace period for loan, rent, and utility payments whenever an area is placed under enhanced community quarantine or modified ECQ.

Meanwhile, the BSP chief assured the economy is still well-placed to afford new loans taken to boost funds for COVID-19 response. The government has borrowed $5.6 billion (about ₱237 billion) from foreign sources as of July – a level that's still "manageable," according to Diokno.

The national debt totaled ₱9.05 trillion in June as the state borrowed more for pandemic response measures. One-third of the amount came from foreign borrowings, while the rest were sourced locally.

The Bayanihan 2 act will still be subject to a bicameral conference between House and Senate members for a unified version of the law, before it is referred to the President for signing into law.