The central bank has put its foot down against lawmakers’ proposals to grant loan borrowers a blanket one-year halt to debt payments as part of a broader relief package being deliberated by Congress in response to the COVID-19 pandemic.

In a strong statement delivered on Thursday (Aug. 13), Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said adopting the 365-day moratorium on loan servicing proposed in the “Bayanihan 2” bill — while well intentioned — will worsen the country’s economic problems.

“The said policy, while having the best interest of the public in mind, may result in unintended consequences that will severely affect 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 will undermine the confidence of the public in the banking system.”

Diokno’s statement is the latest in a string of adverse reactions from the business and banking communities against the proposed loan payment moratorium.

Other prominent personalities who have come out to oppose the Congress proposal included Finance Secretary Carlos Dominguez III, several private sector economists and the Bankers Association of the Philippines, all of whom cited the adverse effects such a move would have on the financial system and investor confidence.

The central bank chief also said that ordering a stop to loan payments for one year will limit the availability of credit in the country as banks adopt stricter underwriting standards or completely deny credit to some sectors, including micro, small and medium enterprises.

“Adopting a 365-day moratorium on loan payments will pose serious risks to the soundness of banks and 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 affected.”

“A sound banking system is one of the aces in our sleeve,” he said. “It is one of the reasons why the Philippines has received affirmation from credit rating agencies amid 82 sovereign downgrades and 104 outlook revisions from January 1 to June 30 this year.”

More importantly, Diokno explained that lessons from previous crises have shown that financial instability can have a serious impact on the real economy.

“A banking crisis, in particular will disrupt the flow of funds between savers and borrowers, impede efficient allocation of financial resources which ultimately affects economic
growth and development,” he said.

“As you know, while monetary policy has done heavy lifting amid this public health crisis, it is not the only game in town,” he added.


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