Policy statement and rationale
- The BSP recognizes the helpful role of salary-based, consumer lending schemes in allowing an individual borrower to manage cash flows (Section X327/4337S.1).
- Loans must be granted under sound credit standards and fair consumer practices (Section X327/4337S.1).
- The BSP encourages competition and transparency to promote efficient and innovative delivery of financial services and fair dealing with customers (Section X327/4337S.1).
Key definitions and transaction coverage
- “Salary-Based General-Purpose Consumption Loans” are defined as 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 comes from future cash flows (Section X321/4337S.1).
- Repayment for these loans may come through salary deductions, debits from the borrower’s deposit account, mobile payments, pay-through collections, over-the-counter payments, or other payment arrangement agreed upon by the borrower and lender (Section X321/4337S.1).
- Covered purposes include education, hospitalization, emergency, travel, household, and other personal consumption needs (Transactions Covered under Section X321/4337S.1).
- Credit cards, motor vehicles, and other personal loans covered by other existing applicable regulations are excluded from coverage (Exclusions under Section X321/4337S.1).
Credit-granting standards and limits
- Financial institutions (FIs) must ensure their lending policies follow best practices and sound credit processes prescribed under BSP regulations, including a comprehensive assessment of the borrower’s creditworthiness (Section X321.2/4337S.2).
- FIs must not rely on mere formula that automatically grants loans based on multiples of monthly salary or other regular compensation (Section X321.2/4337S.2).
- Individual borrowing capacity must be prudently assessed, considering reasonable estimates of (a) total personal and household indebtedness and (b) disposable income available for family and personal needs after debt servicing (Section X321.2/4337S.2).
- The original loan term must not exceed 3 years, but may have a longer maturity in meritorious cases provided that maturity in no case exceeds 5 years (Section X321.2/4337S.2).
- No loan renewal may be granted without (a) re-assessing borrowing capacity and establishing continuing creditworthiness and (b) ensuring payment of accrued interest receivable and substantial reduction in principal (Section X321.2/4337S.2).
- For loan takeout from another FI, the FI taking out the loan(s) must ensure the loan from the originating FI has been fully settled (Section X321.2/4337S.2).
- For loan takeout, FIs must institute adequate controls, including: (a) directly releasing loan proceeds to the FIs where the loan will be taken out; and (b) obtaining a copy of the official receipt evidencing full settlement of the account from the originating FI (Section X321.2/4337S.2).
Consumer protection duties
- FIs must strictly adhere to BSP Financial Consumer Protection requirements under Part Ten titled Consumer Protection of the Manual of Regulations for Banks and Part 4 of the Regulations Governing Non-Stock Savings and Loan Associations (S Regulations) (Section X321.3/4337S.3).
Reporting and financial classification
- For purposes of the Financial Reporting Package, financial assistance under an approved fringe benefit program must be reported/classified according to the purpose of the financial assistance (including categories such as housing/real estate, motor vehicle, and salary-based general-purpose consumption) (Section X321/4337S.1 “Report”**).
- The Financial Reporting Package prescribed under Subsection X191.2 of the MORB is amended to revise the Manual of Accounts (MOA) and reporting templates for FRP and SFRP (Section 2).
- The MOA is revised to include a specific line for “Loans to Individuals Primarily for Personal Use Purposes” and defines “Salary-Based General-Purpose Consumption Loans” for accounting classification as the amortized cost of unsecured loans granted to individuals for broad consumption purposes under the same repayment-cashflow basis described in the Circular (Section 2(a)(a)(c.8c)).
- The FRP reporting templates (attached as Annex A-1) are revised to show a line for Salary-Based General-Purpose Consumption loans under Loans to Individuals Primarily for Personal Use Purposes (Section 2(a)(b), listing template line groups).
- The Simplified FRP for Rural and Cooperative Banks (attached as Annex A-2) is revised for specified schedules (schedules 11, 11a1 to 11e1, 11h1, 11h2, 29d1 and 33) (Section 2(a)(b)).
- For Non-Stock Savings and Loan Associations (NSSLAs), Section 4162S of the MORNBFI is amended to revise the Consolidated Statement Condition (CSOC) and Consolidated Statement of Income and Expenses (CSIE) reporting line for: (a) Salary Loans and Interest/Discounts Earned – Salary Loans to Salary-Based General-Purpose Consumption Loans and (b) Interest/Discounts Earned – Salary Loans to Salary-Based General-Purpose Consumption loans, respectively (Section 2(b)).
Sanctions for non-compliance
- The Monetary Board may impose sanctions on an FI and/or its Board, directors, and officers in cases of persistent non-observance of the Circular’s provisions (Section X321.4/4337S.4).
- Sanctions must be proportionate to the gravity/seriousness of the offense (Section X321.4/4337S.4).
- Sanctions are imposed based on the Monetary Board’s evaluation and discretion (Section X321.4/4337S.4).
Transitory coverage and implementation timeline
- The Circular applies to all salary-based general-purpose consumption loans as defined, including loans outstanding prior to the Circular’s effectivity (Section 3).
- FIs must adopt or amend their policies, procedures, and credit risk strategy to comply with the Circular within six (6) months from effectivity (Section 3).
- Banks and NSSLAs must adopt the revised reporting templates effective for report ending 30 September 2015 (Section 2).