BIG BUZZ: Courting a Financial Crisis

What can turn this coronavirus pandemic into a financial crisis? A populist legislation can, especially when it obliges all lenders to extend a yearlong grace period to all borrowers.

Section 3 of House Bill No. 6953—the so-called Bayanihan 2 bill—proposes that a 365-day moratorium on loan and interest payments be enforced in any area under any form of lockdown, even those that are under modified general community quarantine or the most relaxed form of quarantine where nearly all forms of business and economic activities are permitted.

Fintech Alliance.ph and Philippine Finance Association (PFA) have added their voice of dissent to this provision. Earlier, the Bankers Association of the Philippines had raised the red flag and no less than Finance Secretary Carlos Dominguez aired concern against any blanket credit concession formula that could harm the entire banking system.

Beyond the banks, the growing ecosystem of fintech and other lenders catering to small businesses is also at utmost risk.

Lito Villanueva, president of Fintech Alliance, said in an Aug. 11 letter to Sen. Pia Cayetano, a member of the Bicameral Conference Committee, that such a yearlong moratorium would be “untenable for many financing and lending companies and other credit-granting entities and lead to their closure, inevitably depleting available, accessible and affordable credit, particularly to the unbanked sector that is primarily served by the fintech industry.”

“The PFA is one with the government in pushing for measures that would help Filipinos particularly the vulnerable and underprivileged during this COVID-19 pandemic, but these measures should take into consideration the position of all parties involved,” PFA president Jude Romano said.

And while the intention of the yearlong moratorium is to aid the borrower, Villanueva said any temporary reprieve from the obligation would only be far outweighed by the adverse effects, citing that borrowers might end up with higher borrowing costs if interest on their loans continued to accrue, resulting in higher debt repayment burden at the expiration of the grace period.

Also, the risk that borrowers will be unable to meet their future payment significantly increases over time, which affects the credit standing of both the borrowers and lenders.

If this happens, lenders must, under global financial reporting standards, immediately reevaluate their loan portfolios to estimate for expected credit losses, which affects their profitability and ability to sustainably grant credit

Lenders will also have less ability to take voluntary measures, in consideration of the circumstances applicable to specific borrowers, to restructure loans and implement varying recovery actions because of the overall adverse impact of any disproportionately long grace period.

Finally, the short-term liquidity of nonbank financial institutions, which primarily rely on loan repayments to manage their liquidity, will be drained, thus impairing their ability to continue to grant credit to other borrowers who will then be deprived of financing opportunities.

“We recognize that reasonable measures to implement forbearance, deferral, or suspension for debt obligations may be necessary. However, any such payment moratorium cannot be unduly excessive as to lead to the outright collapse of an entire industry, a downfall that will have dire consequences for the entire economy,” Villanueva said.

On the other hand, the Senate version under Senate Bill No. 1564—which calls for a 30-day grace period on all loans falling due within the enhanced community quarantine (ECQ) or modified ECQ (similar to what Bayanihan Act 1 mandated)—is deemed by the creditor community as the more reasonable alternative. —DORIS DUMLAO-ABADILLA

PICK.A.ROO

The Megaworld group is set to launch later this month its own delivery app called “PICK.A.ROO,” touted as an “allin-one, on-demand premium lifestyle delivery app.”

This is the first of a string of investments planned by the Megaworld group through its newly hatched digital investment arm Agile Digital Ventures, which has a seed capital of $5 million.

In launching this app, Megaworld seeks to take advantage of opportunities brought about by changes in consumer behavior and lifestyle in this digital age.

Using this app, customers can purchase products including food, gadgets, hardware, kitchenware, children’s toys and stuff, pet care, personal care, medicines, office and school supplies, hotel dishes, liquor and COVID-19 essentials from over 300 local and international merchants.

Orders may either be delivered on-demand, or on a later schedule. Customers may choose for regular delivery, drive-through, or pickup for their orders.

The group assures that PICK.A.ROO riders and shoppers undergo strict safety and sanitation protocols, which include rapid testing, thermal scanner checks, thorough disinfection of delivery bags, including the provision of clinical-grade face shields and masks.

“Our main goal is to help retailers smoothly migrate to the digital platform especially during this challenging time. Since 2018, we have been looking for investment opportunities on an app that will enable our retail partners sell and deliver their products online and on-demand. We have talked to several potential partners, but eventually, we decided to build our own,” said Kevin Tan, chief strategy officer of Megaworld, who is concurrently president of Agile Digital Ventures.

“We started from scratch to build our first startup brand. Aside from the technology itself, we put focus on operations, which will be integral to the success of every brand that we create,” Tan added. —DORIS DUMLAO-ABADILLA INQ