365-day debt moratorium excessive, to harm both FIs, borrowers–fintech group

THE yearlong grace period for loan and interest payments proposed under the Bayanihan to Recover as One Act Part 2 or Bayanihan II may do more harm for both the financial institutions and borrowers than relief, a financial technology group said. 

In a position paper submitted to the bicameral committee on Tuesday, Fintech Alliance.ph said that the “excessive” debt moratorium period will affect the individual borrowers, small business entrepreneurs and the economy as a whole and its potential impact may take years to reverse. 

Instead, the group called for a 30-day grace period for payment of all loans due within the enhanced community quarantine (ECQ) and modified ECQ period. Fintech Alliance.ph said it was a “more reasonable alternative” to ease the burden of the borrowers amid the pandemic. 

The 365-day grace period will make it difficult to extend credit—due to potential slow inflow of liquidity to fund borrowings—at a time when individuals and small businesses are seeking funding for emergency expenses or capital requirements, the group said.

“Not even the largest, most financially sound and liquid credit-extending business can continue lending and remain viable if they are unable to collect and thereby generate any substantial and sustainable revenue for a period of one year,” the position paper, signed by Fintech Alliance.ph Chairman Angelito M. Villanueva, reads.

The fintech organization pointed out that it would not be sustainable for financing and lending companies as this can reduce available and affordable credit, especially to the unbanked sector which the fintech industry primarily serves.

This could also pose a problem for small businesses and individuals that rely on member-firms of Fintech Alliance.ph to acquire financing for personal expenses including medical bills, utilities and tuition fees and business expansion.

“If our members and other similarly situated companies do not close down altogether as a result of the implementation of a 365-day moratorium, many, if not all, will be constrained to severely limit operations,” the group said. “This contraction, in turn, will cut off access to credit of a significant portion of the population and will indubitably cause the demise of many MSMEs [micro, small and medium enterprises].”

Ultimately, this could also worsen the unemployment rate, it added.

Fintech Alliance.ph is also asking the bicameral committee to consider the following matters before implementing the year long debt moratorium:

■ Borrowers may deal with higher borrowing costs as the interest payments on their loans accumulate.

■ Credit risks increase with prolonged nonpayment of borrowings.

■ Anticipated credit losses will drag the financial companies’ profitability and affect ability to extend a sustainable credit line.

■ Lenders may find it more difficult to restructure loans.

■ The short-term liquidity of nonbank financial institutions relying on loan repayment to manage their liquidity will be adversely impacted.

“It is imperative that the Philippine government carefully balance the immediate but short-term relief granted to borrowers against the long-term effects on the stability and resurgence of the Philippine financial system,” the group said.

File photo: Souvenir shops open at the Ninoy Aquino International Airport Terminal 3, almost four months since they were shuttered due to government-enforced lockdowns to contain the spread of the coronavirus disease.

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