Philippine thrift banks support the Bangko Sentral ng Pilipinas' decision to allow salary loans with repayment periods of up to seven years but want the longest terms limited to certain expenses. Manuel Santiago Jr., a trustee of the Chamber of Thrift Banks, said on Wednesday, July 15, that six- and seven-year terms should not automatically be available for all salary loans, particularly those used for recurring expenses. The position follows BSP Circular No. 1239, issued June 18, which extended the maximum repayment period for salary-based consumption loans to seven years.
Chamber of Thrift Banks Proposes Limits on Long-Term Salary Loans
Santiago, who is also president and chief executive of CitySavings, said at the sidelines of the Chamber of Thrift Banks annual convention that the industry wants to avoid overburdening borrowers. "Where tuition is really a one-year thing and you're going to need tuition every year, you cannot do seven years of tuition fee, right?" Santiago told reporters on Wednesday, July 15.
The chamber is considering recommending that longer loan terms be reserved for emergency situations, such as hospitalization, and major non-recurring expenses, such as home repairs. Santiago said thrift banks had to balance "the purpose of where the six- and seven-year loans are going to be applied." "Our position is that it shouldn't be for all," he added.
Santiago said salary loans may comprise around 30% of the portfolios of thrift banks with several consumer products, but can reach 70% to 80% among lenders that specialize in salary-based financing. BSP Deputy Governor Lyn Javier said about 70% of thrift-bank loans are extended to individuals, while around 24% go to businesses. Salary loans account for more than half of the sector's individual-loan portfolio.
BSP Circular No. 1239 Extends Maximum Loan Term to Seven Years
Under BSP Circular No. 1239, issued June 18, the maximum repayment period for salary-based consumption loans was extended to seven years. "The BSP recently removed the five-year limit on salary loans and extended it to seven years, depending on assessment of the capability of the borrower to repay the obligation. And this is to provide greater flexibility and allow banks to better restructure repayment based on the borrower's circumstances," Javier said during the convention.
The seven years is a ceiling, not an automatic or required loan term. Banks may still determine how long a borrower should be given to pay based on the person's income, capacity to pay, repayment sources, employment and credit history, and the nature and purpose of the loan. The rule applies to salary loans used for expenses, including education, meaning tuition is not prohibited. However, lenders retain the discretion to approve a shorter term.
Javier said extending the maximum term was intended to give borrowers and banks more flexibility, including when restructuring loans. She urged lenders to look beyond simply extending credit. "The next challenge is to help the borrowers improve their financial well-being over the long term. True compassion doesn't end with lending. Banks or the industry should also support in providing financial wellness programs, livelihood opportunities, securing their retirement," the deputy governor said.
FAQ
What did the Bangko Sentral ng Pilipinas announce on June 18 regarding salary loans?
The BSP issued Circular No. 1239 on June 18, extending the maximum repayment period for salary-based consumption loans from five years to seven years. The extension is intended to provide greater flexibility and allow banks to better restructure repayment based on the borrower's circumstances.
Why do thrift banks want restrictions on seven-year salary loans?
Manuel Santiago Jr., a trustee of the Chamber of Thrift Banks, said on Wednesday, July 15, that the industry wants to avoid overburdening borrowers. He stated that six- and seven-year terms should not be available for recurring expenses like annual tuition, saying "you cannot do seven years of tuition fee" for yearly costs. The chamber is considering recommending longer terms only for emergency situations and major non-recurring expenses.
How much of thrift bank portfolios do salary loans represent?
Manuel Santiago Jr. said salary loans may comprise around 30% of the portfolios of thrift banks with several consumer products, but can reach 70% to 80% among lenders that specialize in salary-based financing. BSP Deputy Governor Lyn Javier said salary loans account for more than half of the sector's individual-loan portfolio.
