THE central bank said its Monetary Board has allowed the 25 percent single borrowers’ limit (SBL), specifically available to banks and quasi-banks (QBs) as a temporary regulatory relief to jump-start financing for public-private partnership (PPP) projects, to expire today, December 28.
In a statement on Tuesday, the Bangko Sentral ng Pilipinas (BSP) said the regulatory relief, which was originally provided in 2010 for three years, has been extended for another three years.
“In approving this move, the Monetary Board considered that there are sufficient feasible funding alternatives already available to PPP project proponents,” it said.
On June 23 this year, the BSP issued Circular 914, rationalizing the restrictions on lending to banks’ subsidiaries and affiliates to help finance productive sectors and priority projects under the Philippine Development Plan/Public Investment Program.
In particular, the BSP refined its regulatory guidelines to allow companies the flexibility to engage in different
PPP-related project finance activities structured as self-contained special purpose entities (SPEs). Although
defined as affiliates, SPEs will be treated as independent entities subject to their own SBL if the project cash flows are properly ring-fenced. The same circular also exempts a bank’s or QB’s l oans to its related parties for project financing purposes from the 30 percent unsecured individual ceiling during the pre-operational phase of a PPP project.
The MB also considered that the entry of new foreign banks into the country provides additional potential funding sources, in addition to syndicated loans that may be structured by existing banks.
“Loan syndication spreads the credit risk exposure arising from big-ticket projects. Furthermore, PPP projects that are already operational can be refinanced through the issuance of project bonds in the domestic capital market to open new long-term funding for infrastructure and other similar projects,” it explained.
It added that funding arrangements with multilateral organizations such as the World Bank, the Asian Development Bank, the newly formed Asian Infrastructure Investment Bank (AIIB), and international development organizations like the Japan International Cooperation Agency (JICA), can also help fund PPP projects.
The decision of the MB to allow the additional SBL window to close took into consideration the significant systemic risks from credit risk concentration if the regulatory relief is further prolonged.