Government-owned Land Bank of the Philippines is encouraging qualified local government units (LGUs) with good credit standing to borrow funds and take advantage of the two percent loan subsidy under Bayanihan 2.
“We strongly encourage our LGUs to make full use of credit facilities subsidized by the national government to bankroll development projects in their respective localities,” said Landbank president and CEO, Cecilia C. Borromeo in a statement. “This will contribute greatly to reviving local economies and helping the country recover from the impact of the COVID-19 pandemic.”
The interest subsidy is one of the provisions of Bayanihan 2 or Republic Act No. 11494 (“Bayanihan to Recover as One Act”) and Landbank has a P1 billion interest subsidy fund that will be applied to the loan interest payments of municipal, city and provincial LGUs until December 31, 2022, or until the subsidy runs out. The bank will give a maximum interest subsidy of P10 million for cities and provinces, and P5 million for municipalities.
The interest rate subsidy will be granted to LGU accounts under Landbank’s lending program RISE UP LGUs (Restoration and Invigoration package for a Self-sufficient Economy towards UPgrowth for LGUs) launched in July. As of end-November, Landbank has approved 156 LGU loans worth P52.27 billion and part of this amount are under this program.
Landbank said qualified LGUs may borrow for eligible projects such as: permanent working capital for the purchase of agricultural produce, acquisition of equipment; construction of facilities for linking of products to the market such as market infrastructure development and improvement; mobile palengke, collection and buying stations, and other related facilities.
“LGUs with loans for programs and projects that provide basic and support services, social welfare and healthcare, and other infrastructure activities that aim to bring back confidence of the people and spur the local economy and businesses are also eligible to avail of the interest subsidy,” said Landbank.
Loans will have a fixed interest rate of four percent per annum until the end of 2022, wherein the remaining two interest rate will be charged to the LGU, said Landbank. Interest rate will be repriced every year and borrowers may pay their loan up to 15 years inclusive of up to three years grace period on principal payable based on cash flow, it added.
Landbank is the primary depository bank of LGUs and it caters to 81 provinces, 146 cities, and 1,478 out of the 1,488 municipalities in the country.
Landbank has a P300-billion credit financing window that could be used for anti-pandemic programs. However based on the Department of Finance’s Bureau of Local Government Finance data, only 35 percent to 40 percent of LGUs have tapped this facility.
Besides Landbank, the Development Bank of the Philippines also has a P1 billion interest subsidy fund.
The Bangko Sentral ng Pilipinas (BSP) has reviewed P25.1B proposed LGU loans in the first half of 2020. These are LGU requests for Monetary Board opinions for their proposed loans.
LGUs are required to seek Monetary Board opinions for each financing or domestic borrowings they will avail of for transparency and for BSP to review the intended purpose of the proposed loans and its impact on the economy and financial system.
Generally, LGUs are considered low-risk borrowers since they can use their annual internal revenue allotment allocations to pay for loans.