September 11, 2015

BSP expands definition of salary loans

The Bangko Sentral ng Pilipinas (BSP or central bank) has expanded the definition of salary loans to mean “salary-based, general purpose consumption loans.” Based on the new guidelines, salary loans shall now refer to “unsecured loans for a broad range of consumption purposes, granted to individuals mainly on the basis of regular salary, pension or other fixed compensation, where repayment would come from such future cash flows, either through salary deductions, debits from the borrower’s deposit account, mobile payments, pay-through collections, over-the-counter payments or other type of payment arrangement agreed upon by the borrower and lender.”

Moreover, the expanded definition of salary loans now covers credit accommodations for education, hospitalization, emergency, travel, household and other personal consumption needs. In this light, the BSP will now require banks to adopt credit standards that are specifically tailored for the expanded definition of salary loans. These loans shall have an original maturity of three years, but may be extended up to five years.

Our take: The recently-released guidelines formalize the expanded definition of salary loans. These, along with specifically tailored credit standards, should facilitate faster growth of salary loans. It remains to be seen which banks will focus on building or expanding their salary loan portfolios. Nonetheless, we believe that this should provide banks another avenue to participate in the country’s domestic consumption story. – WealthSec