The Bangko Sentral ng Pilipinas (BSP) has relaxed compliance to the DOSRI rules, or loans to directors, officers, stockholders and their related interests for borrowings that directly involve the National Government.
The BSP's Monetary Board also issued a second circular which tightened the single borrower's loan (SBL) limit on the underwritten debt and equity securities of banks and investment houses.
BSP Circular No. 785, signed by Governor Amando M. Tetangco Jr. last Friday, is granting exclusions from the DOSRI cap for all loans and other credit accommodations covered by guarantees of international and regional multilateral financial institutions where the government is a participant or a shareholder.
For example, loans that will not be imposed a DOSRI limit are loans guaranteed by multilateral funders such as the Asian Development Bank and the International Finance Corp. of the World Bank.
Under Section 36 of the General Banking Law of 2000, the BSP is authorized to implement restrictive DOSRI rules. The DOSRI individual limit or ceiling is 10 percent and five percent for unsecured limits, and aggregate 20 percent limit on loans, other credit accommodations and guarantees granted by banks to their subsidiaries and/or affiliates.
The BSP's Monetary Board, in the meantime, also approved Circular No. 784 which it stated will strengthen the application of the SBL limit and the equity investment ceilings on the underwriting exposures of banks and investment houses.
Based on the circular memo, the BSP is tightening the holding period for not recognizing the risk exposures involved for any portion of the issue that has been "taken on by banks and investment houses for its own account as a result of its securities underwriting." This effectively amended the exclusion rules to the loan limits on banks' debt and equity securities.
The SBL limits lending of a bank to a single client to only 25 percent of their capital. As a general rule, banks should spread their risks. By capping lending to a single client, the potential loss of a bank from that particular's client failure will be limited.