Water districts get more access to loans

MANILA, Philippines - Local water districts may now get more funding from banks after the Bangko Sentral ng Pilipinas (BSP) lifted limitations on loans given to them. The amendment of Section X337.1 of the Manual of Regulations for Banks, which was approved by the Monetary Board last week, excluded loans given to local water districts from the limits on lending to bank directors, officers, stockholders and their related interests (DOSRI). The previous ruling stated that borrowings made by government-owned and -controlled corporations, as well as corporations where the government and its departments, agencies and bureaus own at least 20% of the capital stock, are considered indirect borrowings of the national government, thus making them subject to DOSRI ceilings. The Monetary Board recognized that while local water districts are considered GOCCs, such entities are organized and controlled by local government units (LGUs) which have physical autonomy from the national government. The Monetary Board also took into consideration that the ownership and capital structures of local water districts indicate the absence of capital investments or equity from the national government as the funding comes mainly from contributions from local government units themselves as well as foreign donors. The policy-making body also recognized that local water districts are self-sufficient entities, such that they are able to pay for their obligations and sustain their operations through their own funds and not through the national budget. "Before the policy change, water districts [were subject to] DOSRI ceilings," BSP Deputy Governor Nestor A. Espenilla, Jr. told reporters last week. "LGUs are considered separate from the [national government] because of the autonomy granted under the Local Government Code. Analogously, we are treating local water districts as autonomous also," he added. Under existing rules, the aggregate DOSRI ceiling should be equivalent to the bank’s capital accounts or 15% of its loan portfolio, whichever is lower. The ceiling on unsecured DOSRI loans — or loans granted without collateral — is either 30% of the aggregate DOSRI ceiling or 30% of the total outstanding DOSRI loans, whichever is lower. A bank is charged for any excess over the ceiling, equivalent to 0.1% of the excess amount but not exceeding P30,000 per day. Any excess over the loan ceiling is likewise deducted from the bank’s capital, effectively reducing its capital adequacy ratio. The BSP last year eased its rules in lending by scrapping the provision that had required banks to set aside bigger capital on unsecured loans to local water districts and state universities. Mr. Espenilla said the recent policy change will allow for the expansion of local water districts. "[The change] will allow the GFIs to fully support the expansion of local water districts, which provide a very vital service," he said. - Gerard S. de la Peña, BusinessWorld