MANILA (UPDATE) - The proposed 365-day loan moratorium under the House version of the Bayanihan 2 law might have an "unintended" adverse effect and could lead to "grave damage" to the economy, the Management Association of the Philippines said Friday.

Based on available data, at least P11 trillion, or 78 percent of the total P14 trillion deposits have been loaned to the public, MAP president Francis Lim said in a statement.

Around 70 percent of depositors are non-borrowers, it said.

"While ostensibly good for our citizens in the short run, it may have unintended adverse consequences for the country that can potentially exacerbate the negative impact of the pandemic," Lim said.

"The moratorium will put at risk our banks' ability to service the withdrawals of their clients and adversely affect public confidence in the banking system," he added.

Under the House of Representative's version of the Bayanihan to Recover as One (Bayanihan 2) bill, the country's second coronavirus response law, is a provision to grant a 365-day moratorium on loans.

Lim said the move could "drastically lessen" the bank's liquidity, limiting their capacity to lend at a time when capital is badly needed to help firms recover from the pandemic.

"This will cause grave damage to the economy that will require significant resources and time to repair," Lim said.

Lim urged the Bicameral Conference Committee to adopt the Senate version of the bill, which limits the moratorium to one month.

Bangko Sentral ng Pilipinas Gov. Benjamin Diokno earlier said the proposed measure might have "unintended consequences that will severely affect the banking industry."

"It will significantly strain the liquidity and capital position of banks. The inability of a bank to service withdrawals will trigger a bank run and will undermine the confidence of the public in the banking system," Diokno said.

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The Bankers Association of the Philippines (BAP) said it shares the concern of the BSP, that a longer moratorium will affect the financial system's liquidity.

"We have to ensure the stability and robustness of the banking system in order to help our economy pave the way towards recovery," said BAP managing director Benjamin Castillo.