The Monetary Board has decided to allow the lapse by 28 December 2016 of the additional 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. The regulatory relief was originally provided in 2010 for a period of 3 years and had 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. Earlier, the Bangko Sentral ng Pilipinas (BSP) rationalized the restrictions on lending to subsidiaries and affiliates of banks to support the financing of productive sectors and projects that form part of the priority programs under the Philippine Development Plan/Public Investment Program with the issuance of BSP Circular No. 914 dated 23 June 2016.
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 such SPEs may fall under the definition of an affiliate, they will be treated as independent entities subject to its own SBL if the project cash flows are properly ring-fenced.
The same Circular also exempts a bank’s or QB’s loans to its related parties for the purpose of project finance from the 30 percent unsecured individual ceiling during the pre-operational phase of a PPP project.
Moreover, 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.
Finally, funding arrangements with multilateral organizations such as the World Bank, the Asian Development Bank, and the newly formed Asian Infrastructure Investment Bank (AIIB), as well as with international development organizations like Japan International Cooperation Agency can also help fund PPP projects.
The decision of the MB to allow the additional SBL window to close takes into consideration the significant systemic risks from credit risk concentration if the regulatory relief is further prolonged. The MB decision is thus firmly in line with the financial stability objectives of the BSP.