BSP approves reporting rules on agri financing

The Bangko Sentral ng Pilipinas (BSP) has approved the amended rules and regulation on the prudential reporting of banks’ mandatory agriculture, fisheries and rural development (AFRD) financing. AFRD, as contained under Republic Act No. 11901, otherwise known as “The Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022” will be covered by reporting based on compliance and computation of total loanable funds, among others. BSP describes AFRD financing as loans and investments to increase the income of an agricultural and fisheries household, as well as improve agricultural sector productivity and competitiveness for the sustainable development of rural communities. The circular, signed by BSP Governor Felipe M. Medalla on June 9, amended the reporting of AFRD loans such as reporting period, timelines, and clarification as well as changes to terms, accounts and instructions on reporting in compliance to the implementing rules and regulations or IRR. In terms of modes of compliance, amendments to prudential reports include bills payable and bonds payable such as those issued by Land Bank of the Philippines and Development Bank of the Philippines. The BSP’s Monetary Board approved the IRR as Circular No. 1159 in November 2022. It required all banks to allocate 25 percent of their total loanable funds for AFRD financing for 10 years. For banks that have just been established, they will be exempted from the required allocation for a period of five years. By BSP definition, newly-created banks are local or foreign banks whose first five years of operation ended on Aug. 18, 2022. Under the new law, banks are provided with “greater flexibility” in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors. However banks that will fail to comply or under-complied with the required AFRD financing will be penalized with an annual monetary charge of 0.5 percent to be computed on a quarterly basis. The BSP expects all banks to design and offer financial products and services that suit the specific requirements of rural community beneficiaries, taking into account their cash flows and the gestation and harvest period of the agricultural, fishery or rural produce, activity or project being financed. Based on the new law, banks are provided with “greater flexibility” in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors. Banks may comply with the mandatory credit requirement through the following modes: actual extension of loans to rural community beneficiaries -- gross of allowance for credit losses -- for purposes of financing AFRD activities; purchase of eligible loans; and purchase of eligible securities gross of allowance for credit losses but net of unamortized premium or discount. The circular also allowed consolidated compliance with the AFRD mandatory allocation but subsidiary banks should be directly or indirectly majority owned by the parent bank. Meanwhile, the government’s two state banks, Landbank and DBP in consideration of the new law, will continue to apply low interest rates for loans under AFRD financing. Before RA 11901, banks are mandated to set aside 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities.