Thrift banks back 7-year salary loans but warn: Not for tuition fees
MANILA, Philippines – Philippine thrift banks are fully supporting the Bangko Sentral ng Pilipinas’ decision to allow salary loans with repayment periods of up to seven years. But they are urging caution: longer terms should not be a free pass for all expenses, especially recurring ones like tuition.
Manuel Santiago Jr., a trustee of the Chamber of Thrift Banks and president of CitySavings, said the industry wants to protect borrowers from piling up debt they cannot manage. “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?” he told reporters on Wednesday, July 15, at the sidelines of the chamber’s annual convention.
Why longer loan terms raise red flags
Salary-based general-purpose consumption loans are unsecured. They rely on a borrower’s regular salary, pension, or fixed compensation. Unlike a housing or car loan, there is no property for the bank to seize if payments stop. Extending repayment to seven years can lower monthly deductions, but it also keeps borrowers in debt longer and increases total interest paid.
For banks, overextended borrowers can turn loans nonperforming. That weakens asset quality and forces lenders to set aside more provisions for potential losses. Santiago warned that salary loans already make up 30% of many thrift banks’ portfolios, and up to 80% for lenders that specialize in this type of financing.
What the new BSP rule actually says
Under BSP Circular No. 1239, issued on June 18, the maximum repayment period for salary-based consumption loans was extended from five to seven years. The BSP’s Deputy Governor Lyn Javier explained that this is a ceiling, not an automatic term. Banks must still assess each borrower’s income, capacity to pay, employment history, and the purpose of the loan.
“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,” Javier said. “This is to provide greater flexibility and allow banks to better restructure repayment based on the borrower’s circumstances.”
The rule applies to salary loans used for expenses including education. But lenders retain the discretion to approve a shorter term. The chamber is considering recommending that longer terms be reserved for emergencies like hospitalization or major non-recurring costs like home repairs.
What this means for teachers and everyday Filipinos
Teachers and government employees are among the most common salary loan borrowers. Santiago stressed that the industry wants to avoid overburdening them. “We are very careful in making sure that the teachers or the salary loan people are not overburdened,” he said.
Javier urged lenders to go beyond just extending credit. “Ang tunay na malasakit ay hindi nagtatapos sa pagpapautang,” she said. “Banks or the industry should also support in providing financial wellness programs, livelihood opportunities, securing their retirement — and, shameless plug — yes, promoting PERA.”
As of now, about 70% of thrift-bank loans go to individuals, and salary loans account for more than half of that. The new rule gives banks more room to help, but the message from the industry is clear: longer loans are a tool, not a solution for every need.