As part of a larger relief program being deliberated by Congress in response to the COVID-19 pandemic, the central bank has set its foot against the plans by lawmakers. It aims to give loan holders a blanket one-year halt to debt payments.
Bangko Sentral ng Pilipinas ( BSP) Governor Benjamin Diokno said in a strong statement delivered on Thursday (Aug. 13) that implementing the 365-day moratorium on loan servicing proposed in the “Bayanihan 2” bill — though well-intentioned — will exacerbate the economic problems of the nation.
“The said policy, while having the best interest of the public in mind, may result in unintended consequences that will severely affect three things. They are the banking industry, the financial system, and the economy,” the central bank chief said.
“It will significantly strain the liquidity and capital position of banks,” he added.
He said any resulting “inability of a bank to service withdrawal may trigger a bank run. And also, it will undermine the confidence of the public in the banking system.”
Banking Communities Against the Proposed Loan
Diokno’s statement is the latest in a string of adverse reactions from the business. And also, banking communities against the proposed loan payment moratorium.
Other influential figures who came out in opposition to the Congress resolution included Finance Secretary Carlos Dominguez III, many private-sector economists, and the Philippine Bankers Association, all of whom cited the negative effects such a move would have on the financial system. And also, on the confidence of investors.
The central bank chief also said that ordering a one-year stop to loan payments would restrict credit availability in the country. It was because of banks follow more stringent underwriting criteria. Or, refuse credit to some sectors, including micro, small and medium-sized enterprises.
“Adopting a 365-day moratorium on loan payments will pose serious risks to the soundness of banks. And also, financial stability in general,” he said. “A one-size-fits-all prescription is unwise.”
Diokno explained that, while the Philippine banking industry is sound, “some banks might adversely be affected.”
More specifically, Diokno clarified the lessons learned. From past crises, they have shown that financial turmoil can seriously impact the real economy.
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