The Philippine central bank's Monetary Board is tightening rules on the granting of loans and other credit accommodations, including letters of credit (L/Cs) with the aim of controlling the rise in the banking system's non-performing loans.

According to central bank deputy governor Alberto Reyes, a circular is to be issued by the central bank that will stress that the need to grant loans in such a way that is consistent with "safe and sound" banking practices, which he says should include thorough credit investigation.

"Banks should ascertain the purpose of the loan and other credit accommodations before they grant loans," he said.

Central bank officials earlier said there would be sanctions for "unsafe and unsound banking practices" such as engaging in speculative or hazardous investment policies and the payment of excessive cash dividends.

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