State-run Social Security System (SSS) said that it has already adopted new salary loan guidelines months before a Commission on Audit (COA) report has revealed the pension fund has overcharged its members by some P788.842 million.
However, SSS denied that it has not violated any law or policy on lending even if it had overcharged its member-borrowers.
Ma. Luz C. Generoso, SSS assistant vice president explained that the computation, which the SSS uses to calculate the interests on loans is based on a policy that was approved by the Social Security Commission (SSC) in 2000.
"In compliance with the SSC resolution, we started deducting in advance the first year interest on salary loans since 2000 to align the yield of our investments on member loans with the prevailing market rates," Generoso said.
"The interest computation was a regular and accepted method in credit-granting," she added.
Generoso pointed that the policy of collecting the first year advance interest is clearly indicated in the application form for salary loans which the member confirms to have read and agreed.
Meanwhile, Generoso said that the state-pension fund has now revised its guidelines to keep the fund in-step with the current low-interest rate environment and to improve administrative efficiency.
"We wanted to align our loan interest rates with the market so we reviewed and made necessary amendments in our salary loan guidelines. We forwarded this to the SSC, which they approved last April," Generoso explained.
Under the new guidelines, amortizations for short-term member loans will be computed by charging interest on the outstanding balance of the loan at the beginning of each installment period. Since the borrower will only pay interest on the amount of the principal that has not yet been repaid, interest payment is declining every period.
The 10 percent effective annual interest of the loan will be charged based on diminishing principal balance and it will be amortized over 24 months.