1-year loan moratorium will crash economy – businesses, bankers

Business groups strongly opposed the one-year loan moratorium proposed under the House version of Bayanihan 2, adding that the move will have "unintended adverse consequences."

Management Association of the Philippines president Francis Lim said the proposal will only be good in the short run, but will have adverse impact over time.

He noted that at least P11 trillion, or roughly 78% of the total P14 trillion of all deposits, have been loaned to the public. Around 70% of the depositors are non-borrowers.

"The moratorium will put to risk our banks' ability to service the withdrawals of their clients and adversely affect public confidence in the banking system. It will also drastically lessen the banks' liquidity, curtailing their capacity to lend at a time when businesses badly need capital to help them recover from the pandemic," Lim said.

"This will cause grave damage to the economy that will require significant resources and time to repair."

Lim, like the Bankers Association of the Philippines (BAP), proposed a one-month loan moratorium instead.

BAP proposed that a 30-day grace period be extended to areas under strict lockdowns.

"We have to ensure the stability and robustness of the banking system in order to help our economy pave the way towards recovery," said BAP managing director Benjamin Castillo.

Bangko Sentral ng Pilipinas governor Benjamin Diokno earlier slammed the proposal, as it would "significantly strain the liquidity and capital position of banks."

Diokno said the proposal would also limit the availability of credit in the country, amid banks already tightening requirements for loans. (READ: Bangko Sentral encourages lending for economy, but banks tighten up)

"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. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.