Rural banks willing to grant longer grace period for loan payments

Metro Manila (CNN Philippines, August 21) — Rural banks can afford to pause loan payments by another two months to help borrowers cope with the impact of the COVID-19 pandemic, an industry official said.

Elizabeth Carlos-Timbol, president of the Rural Bankers Association of the Philippines or RBAP, said Friday that small lenders can still absorb the impact of delaying the collection of monthly mortgages and other loan receivables ahead of the 60-day grace period this year as provided under the Bayanihan 2 bill.

"Based on our stress tests in rural banking, 30-45 days is the one that we can handle. But an additional 15 days... because the rural banks are well-capitalized, we can manage that as a striking balance and in the spirit of cooperating with the Bayanihan 2," Carlos-Timbol told CNN Philippines' The Exchange on Friday.

Lawmakers on Thursday agreed to a unified version of the ₱165.5-billion stimulus plan called the Bayanihan to Recover as One Act, which is close to becoming law. The Senate has ratified the bill and is waiting for the House of Representatives to do the same before it can be sent to Malacañang for enactment.

Rural banks have not stopped lending especially to small firms, farmers, and fisherfolk — segments which big lenders deem risky — amid the pandemic, saying that they are also encouraged by various relief measures provided by the Bangko Sentral ng Pilipinas.

The Bayanihan 2 bill also provides as much as ₱55 billion in additional capital to state-run banks and government financing units to extend more loans to small businesses and affected sectors. The RBAP said they may serve as conduits for such loans.

Central bank Governor Benjamin Diokno earlier spoke up on behalf of banks to ask Congress to reduce the 365-day moratorium on loan payments under the House version of the bill, saying a leeway this long would lead to a significant collapse in banks' cash positions and may trigger a bank run.

There are currently 427 rural banks operating. Carlos-Timbol said those who remain are "well-managed, stronger, and better capitalized" compared to provincial lenders which have closed shop in the past years.

"Our borrowers, just like the rural banks, are very resilient... We rural banks are mostly family-owned businesses and are mid-sized so we are more conservative... We sacrifice profitability over stability," the RBAP official added, citing their network of more than 3,200 bank branches and over 22,000 workers employed by these small banks.

In a separate statement, the Management Association of the Philippines commended lawmakers for passing an agreeable version of Bayanihan 2, noting significant policy changes that makes it easier to build telco towers and removes taxes on initial public offerings of companies looking to join the Philippine Stock Exchange.

"Since the funds appropriated are extremely limited, we urge that disbursement be based on objective criteria, such as the sector’s contribution to the GDP, employment share, value added contraction, and their multiplier effect on the economy," MAP said.

The House earlier proposed a recovery plan worth over ₱1 trillion, but the Department of Finance said they can only fund some ₱140 billion for fresh stimulus measures this year.