Lawmakers asked on Tuesday (July 21) the Bangko Sentral ng Pilipinas (BSP) to strictly keep an eye on the banks’ compliance with the required loan threshold to the agricultural sector as provided under the law.
Manila Teachers partylist Rep. Virgilio Lacson, chairperson of the House Committee on Micro, Small and Medium Enterprise Development, scored the banks’ “low compliance” with the Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009, which requires banks to allot at least 10 percent of their respective total loanable funds to agrarian reform beneficiaries and 15 percent to farmers and fisherfolk.
Meanwhile, the Bangko Sentral ng Pilipinas (BSP) reported that as of reserve week June 26, 2020, P71 billion in new and re-financed loans to micro-, small, and medium-scale entewrprises (MSMEs) were reported as alternative compliance by 90 banks with BSP’s reserve requirements.
Rep. Lacson deplored that “the compliance of banks (to the Agri-Agra law requirement) is very low. As of 2017, it’s just P573 billion (of loans extended by) all the banks combined. In 2018, it’s P707 billion, while, if all the banks are compliant we have P1.34 trillion so that’s enough for our economy,” he said during a virtual measures of the House Committee on Banks and Financial Intermediaries on the measures undertaken by banks and financial institutions to support micro, small and medium enterprises (MSMEs) in this time of COVID-19 pandemic.
“If only the banks and other financial institutions are mandated by this Agri-Agra Law, I think that’s already the solution so I think we ask the BSP to be stringent, strict with this Agri-Agra Law, so it could stimulate the economy immediately,” he pointed out.
Quirino lone district Rep. Junie Cua, chairman of the House Committee on Banks and Financial Intermediaries, laments that banks mostly preferred to pay penalties for their non-compliance with the law, instead of lending to the farm sector.
“I think VG (Virgilio Lacson) raised a very important point about the Agri-Agra law which was legislated with (a) very noble and good intention. There’s this this law that requires banking institution to set aside a credit quota to be lent out to agricultural sector and agrarian reform beneficiaries, but unfortunately banks prefer to be penalized instead of lending to these small farmers and to the agrarian reform beneficiaries,” he said.
According to him, the allocation for agrarian beneficiaries actually has become “off tangent to the reality,” explaining that there are now very few beneficiaries, and that the allocation set aside to be lent out to them is disproportionately huge.
“So there’s huge money without takers. That’s why banks end up with being penalized, but the more important reason why banks are unable to lend out, based on our study is that they feel the small farmers, if they are not organized, not only are they are poor credit risks, the(ir) ability to repay is very low,” Cua said.
“The cost of lending is also very high, because instead of lending P25 million to one organization, you need to deal with 1,000 people borrowing P25,000 (each),” he added.
To address the situation, Cua said that they already passed a bill seeking to amend the Agri-Agri Law and mandating banking institutions to strengthen the financing systems for agricultural, fisheries and rural development in the country.
“It is now in the Senate to amend that Agri-Agra Law…We realized farmers are not organized, they could have been organized, in viable cooperatives but there is no program , there might be a program. There’s no funding so this is what this agri agra amendment law is all about. Setting aside fund so that we can correct this structural problem,” he said.
“We will try to make the farmers organized, make them viable cooperatives, so that the banks will not be afraid to lend to them so that they will have no problem complying with the credit quota,” he explained.
During the virtual meeting, BSP’s Managing Director for Policy and Specialised Supervision Lyn Javier relayed to the Cua panel that the banking system has “responded positively” to the BSP’s relief measures for the MSMEs.
“Based on a survey conducted with the country’s top 30 banks composed of the top 10 banks per category — top 10 universal and commercial banks, top 10 thrift banks, top 10 rural banks — we note that banks continue to generate new MSME loans even during the ECQ (enhanced community quarantine),”
“A total of P40 billion in loans were granted by these banks during ECQ,” she noted.
According to her, the top 30 banks also extended financial relief to their MSME borrowers through amendments on their financing term.
From March to April 2020, PP25.6 billion in MSME loan accounts were renewed, while P1.8 billion in MSME loans were restructured, Javier said.