BSP Guidelines on the 60-day Mandatory Grace Period on Unpaid Loans

Republic Act (“R.A.”) No. 11494, otherwise known as the “Bayanihan to Recover as One Act”, directs several financial institutions, real estate, and insurance companies to implement a one-time sixty (60)-day grace period on payments of existing loans falling due on or before 31 December 2020. In relation to this, the Bangko Sentral ng Pilipinas (“BSP”) issued Memorandum No. M-2020-074 (“M-2020-074”) dated 28 September 2020, or the Implementing Rules and Regulations (“IRR”) of Section 4(uu) of the Bayanihan to Recover as One Act.

Pursuant to BSP Memorandum No. M-2020-068 dated 18 September 2020, the BSP issued M-2020-074 in order to provide additional guidelines and to clarify the implementation of Section 4(uu) of the Bayanihan to Recover as One Act. M-2020-074 covers all BSP supervised financial institutions with
lending operations such as banks, quasi-banks, non-stock savings and loan associations, credit card issuers, trust department or trust corporations, pawnshops, and other credit-granting entities under the
supervision of the BSP (“Covered Institutions”).

Mandatory Grace Period

The Covered Institutions are required to implement a non-extendible, mandatory one-time sixty (60)-day grace period (“Mandatory Grace Period”) for all existing, current and outstanding loans with principal and/or interest, including amortizations, that fall or will fall due between 15 September 2020 and 31 December 2020, without the borrower incurring any interest on interest, penalties, fees, or other charges. The Mandatory Grace Period shall commence from the payment due date of loans with
principal and/or interest, including amortizations. This is without prejudice to the Covered Institutions allowing for a grace period longer than sixty (60) days. Waivers from this Mandatory Grace Period is prohibited, provided that borrowers may voluntarily opt not to avail of the Mandatory Grace Period and continue to pay their obligations as they fall due.

The implementation of the Mandatory Grace Period will effectively move the payment due dates and the maturity date (i.e., final repayment date) of the entire loan.

During the Mandatory Grace Period, the Covered Institutions may still impose the interest chargeable per installment period, which is based on the outstanding balance of the loan. However, interest on interests, penalties, fees, or other charges representing charges for late payment or non-payment of the loan on the due date shall not be imposed. The principal and interest for the Mandatory Grace Period may be paid by the borrower on a staggered basis until 31 December 2020, depending on the
agreement of the borrower and the Covered Institution. Otherwise, the borrower shall pay the principal and the accrued interest in full on the new due date following the expiration of the Mandatory Grace Period. For credit card transactions, the BSP clarified that any outstanding balance will not be charged any interest during the Mandatory Grace Period if the borrower pays its total outstanding balance on the new due date following the expiration of the Mandatory Grace Period.

In case loan accounts are covered by post-dated checks, auto-debit or auto-deduct arrangements, the borrower’s consent must be secured by the Covered Institutions before proceeding with the said arrangements.

Covered Loans

Loans that are covered by the Mandatory Grace Period are existing, current, and outstanding loans as of 15 September 2020, which shall include salary, personal, housing, commercial, and motor vehicle loans, amortizations, financial lease payments, and premium payments, as well as credit card payments. Only loans in current status and not past due loans as of 15 September 2020 shall be covered by the Mandatory Grace Period. Thus, “existing loans” means loans granted, or transactions made, in the case
of credit cards, prior to 15 September 2020. Loans or credit card transactions made after 15 September 2020 are not covered.

The Mandatory Grace Period shall apply to multiple loans of individuals and entities, in which case the Mandatory Grace Period shall be applied to each loan.

The Mandatory Grace Period does not apply to interbank loans and bank borrowings.

Regulatory Relief for Covered Institutions

Banks and non-bank financial institutions that agree to further loan term extensions or restructuring pursuant to Section 4(uu) of the Bayanihan to Recover as One Act shall be entitled to regulatory relief, as may be determined by the BSP, which may include: (a) staggered booking of allowances for credit losses, (b) exemption from loan-loss provisioning, (c) exemption from the limits on real estate loans, when applicable, (d) exemption from related party transaction restrictions, and (e) non-inclusion in the bank’s or non-bank financial institution’s reporting on non-performing loans.

Enforcement Action

The BSP may deploy its range of supervisory tools to ensure compliance by the Covered Institutions and to bring about timely corrective actions. The BSP may issue directives to, or impose sanctions on, the Covered Institutions and/or its responsible officer, directors, or employees.