Credit risk

BSP extends lower credit risk weighting for MSME lending

Lawrence Agcaoili – The Filipino Star

September 26, 2022 | 00:00

MANILA, Philippines — The validity of the lower credit risk weight for loans to micro, small and medium-sized enterprises (MSMEs) has been extended for another six months to further encourage banks to lend more to the hard-hit sector. COVID-19 pandemic, according to the Bangko Sentral ng Pilipinas.

BSP Deputy Governor Chuchi Fonacier said that the Monetary Council issued Resolution 1378 on September 16 last approving amendments to the BSP relief measure on easing credit risk weighting for loans. to MSMEs under central bank risk-based capital adequacy frameworks.

“The extension of the relief measure aims to encourage lending to MSMEs and ensure their continued access to financial services,” Fonacier said.

The relief measure expired at the end of 2021, but the regulator issued Memorandum 2022-04 extending several prudential relief measures, including lower credit risk weighting for MSMEs until December.

Under memorandum 2022-041, Fonacier said the relief measure has been extended for an additional six months or until June 30 next year.

Fonacier stated that MSME exposures that meet the criteria of a qualified MSME portfolio as well as current exposures that do not qualify as a highly diversified MSME portfolio will be assigned a credit risk weight of 50% under the Basel risk-based capital adequacy frameworks.

At the height of the pandemic in April 2020, BSP approved the temporary relaxation of the credit risk weight assigned to MSME loans in the calculation of the risk-based capital adequacy framework to 50% from to the previous 75% under the Banking Handbook. (MORBE).

A lower credit risk weighting will allow banks to lend more to the MSME sector rather than setting aside the amount to comply with capital requirements.

BSP has implemented regulatory relief measures to reduce the financial burden on MSMEs as the economy stagnated due to strict quarantine and COVID lockdown protocols.

The regulator also approved the inclusion of loans to MSMEs in banks’ compliance with reserve requirement ratios to ensure adequate liquidity and credit in the financial system.

The BSP requires banks to maintain a minimum amount of cash reserves with the central bank determined by the amount of deposits due to customers.

According to the BSP, measures are needed to mitigate the risk of financial sector volatility in light of ongoing global developments. It would also reduce borrowing costs for affected businesses and households.