MICROCAPITAL.ORG STORY: P500 Billion (USD 10.7 Billion) Bank Loans Exposed to Defaults in Philippines After Tropical Storms

The Bangko Sentral ng Pilipinas (BSP), the central bank of the Philippines, has estimated that P-500-Billion (USD 10.7 Billion) worth of loans are at risk of default due to financial hardships that have come as a result of the typhoons “Ondoy” and “Pepeng” that hit the Philippines in late September [1,2]. This is 24 percent of the total loan portfolio of the banking sector in the Philippines [1]. Because those most vulnerable are individual and retail borrowers, the microfinance industry has been particularly effected by the storms [2]. The typhoons mainly damaged parts of Luzon and the capital, Manila, which accounts for about 30 percent of the country’s gross domestic product (GDP) [2].

The BSP has taken several measures to deal with the situation. Firstly, it has provided P5 billion (USD 107.6 million) in rediscounting loans specifically aimed to help microfinance institutions (MFIs) [2]. Rediscounting loans are loans that are extended to the MFIs in order to refinance the loans of their clients. In other words, these fund allow the MFIs to continue to lend even if many clients are unable to make repayments at the present time. The bank is also allowing a 60-day grace period for rediscounting loan obligations made since September 28, 2009 [3] Additionally, the BSP is encouraging banks to “provide relief to their own customers” [2].

The Economist Intelligence Unit (EIU), the research arm of the Economist magazine, ranked the Philippines the third best country in the world for microfinance in its 2009 Microscope index [4,5]. This story was reported by Microcapital in October of 2009 [6]. The country scored especially well in “regulatory framework” for which it was tied with Cambodia for first in the world [5]. The report cited its “specific provisions for the regulation of microfinance operations,” its willingness to allow MFIs to set their own interest rates, and its straightforward legal process for “forming and operating specialized MFIs” as justification for the ranking [5]. The Philippines also did fairly well in institutional development, where it was ranked sixth due to high competition between microfinance institutions (MFIs) in the country [5].

The BSP was founded in 1993 [1]. It took over for the Central Bank of Philippines under the provisions of the 1987 Philippine Constitution and the New Central Bank Act of 1993 [1]. It was expressly given monetary authority, and “fiscal and administrative autonomy from the National Government” [1]. This is the fifth time that the BSP has provided relief in the wake of typhoons [3].

by Christopher Maggio, Research Assistant

Bibliography
[1] BSP: http://www.bsp.gov.ph/
[2] Manila Bulletin Publishing Corporation article entitled ‘P500-billion bank loans exposed to defaults’: http://www.mb.com.ph/articles/224050/p500billion-bank-loans-exposed-defaults
[3] Philstar.com article entitled: ‘P500 billion loans at risk of default’: http://www.philstar.com/Article.aspx?articleId=512875&publicationSubCategoryId=63
[4] Economist Intelligence Unit: http://www.eiu.com/site_info.asp?info_name=about_eiu&entry1=about_eiuNav&page=noads
[5] Economist Intelligence Unit Global microscope on the microfinance business environment: http://idbdocs.iadb.org/wsdocs/getdocument.aspx?docnum=2189221
[6] MICROCAPITAL.ORG STORY: Peru Ranks First in 2009 Microscope Microfinance Index, A Global Index on Business Environment for Microfinance Developed by the Economist Intelligence Unit (EIU), Released by the Inter-American Development Bank (IDB), the Corporación Andina de Fomento (CAF), the International Finance Corporation (IFC), and the EIU: http://www.mb.com.ph/articles/224050/p500billion-bank-loans-exposed-defaults

Similar Posts: