The Monetary Board has approved prudential measures to assist the micro, small and medium enterprise (MSME) sector carry on with its business during the coronavirus disease 2019 (Covid-19) crisis, as well as hasten recovery and sustainability of their operations in the post-crisis period.
The first set of measures by the Bangko Sentral ng Pilipinas (BSP) are amendments to the regulatory capital treatment of exposures to MSMEs, which free up capital and enable supervised financial institutions to extend more credit to them.
These include the temporary reduction in the credit risk weights of loans granted to MSMEs that are current in status, and assignment of a lower risk weight for MSME exposures that are covered by guarantees.
The credit risk weight of loans granted to these firms that are in current status was reduced to 50 percent from 75 percent for diversified MSME portfolio with at least 500 borrowers over a number of industries; and 100 percent for non-diversified MSME portfolio.
The reduced credit risk weight is subject to review by the BSP by end-December 2021.
The BSP also approved the assignment of a zero-percent risk weight not only to loans that are guaranteed by the Philippine Guarantee Corporation, but also to loans that are guaranteed by the Agricultural Guarantee Fund Pool and the Agricultural Credit Policy Council.
The revision in the credit risk weight complements programs of the national government that support financing to MSMEs, as well as small farmers and fisherfolk.
To enable stand-alone thrift banks, rural banks and cooperative banks to continue to support their MSME and rural community-based clients, the BSP deferred the implementation of the revised risk-based capital framework applicable to these banks under Circular No. 1079 dated 9 March 2020.
The revised capital adequacy framework will now take effect on 1 January 2023, instead of 1 January 2022.
The observation period of the revised framework will be extended from 31 December 2021 to 31 December 2022. Such period provides these banks with enough time to meet the new minimum capital ratios through reasonable measures without disrupting their banking activities.
Moreover, the BSP lengthened the period of relief on the reporting of past due and non-performing loans of borrowers affected by the Covid-19 to 31 December 2021 from the original timeline of 8 March 2021 subject to reporting to the BSP.
These policy issuances reinforce earlier pronouncements of the BSP which recognize MSME loans as alternative compliance with the reserve requirement as well as relax the “know-your-customer” requirements for retail clients to facilitate their access to formal financing channels.
Overall, these measures are expected to channel liquidity directly to the MSME sector while ensuring the health and safety of the financial system.
