Banks released higher agri loans – BSP survey

The Bangko Sentral ng Pilipinas (BSP) reported Friday, May 3, that the share of agriculture loans and services in 2022 went up to 18.1 percent versus 17.6 percent in 2021 with rural and cooperative banks providing bulk of the funding, based on its latest Countryside Bank Survey (CBS).

The 2022 CBS is only the second survey of such kind released by the BSP. The first report was issued in February 2023, covering the year 2021.

According to the 90-page survey report, in 2022 the total value of agricultural loans increased by 36.7 percent to P213.07 billion from P155.90 billion in 2021.

The BSP said surveyed banks attributed the improvement to the growing demand for agricultural loans to the gradual end of the pandemic and Republic Act No. 11901 which induced “flexibility on banks’ compliance on Agri-Agra requirements and thus allowed for alternative forms of investment that count toward their compliance.”  RA 11901 was also known as the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022.

“Furthermore, banks increased their marketing efforts to attract new borrowers and renewed and expanded loans for established, creditworthy borrowers,” said the BSP.

It also noted that the allocation of funds for basic crops in these agricultural loans significantly decreased to P12.73 billion from P53.33 billion because of the “lower demand for basic crop loans, uncontrolled risks such as extreme weather conditions, rising costs and declining profits in basic crop farming, and the lingering effects of the pandemic on some borrowers.”

The value of non-agricultural loans also increased by 34.2 percent to P2.8 trillion in 2022 from P2.1 trillion in the previous year. “For banks that increased the value of granted non-agricultural loans, the growth was due to higher demand for personal and business loans by new borrowers, better marketing to small business owners, and a less restrictive borrowing environment,” said the BSP.

The CBS also noted an expansion in loan products for agricultural needs such as seeds, fertilizer, working capital, and farm equipment, sustainable projects, digitalization of farming activities, and agri-tourism activities.

Basically, the 2022 survey which included 5,560 banking units, established baseline data to monitor banks' compliance with RA 11901 and includes questions about specific agricultural loan products and services offered in 2021 and 2022 that are consistent with the said law.

The CBS cited several key assessment including a review on the demand for agricultural loans which it said was 40 percent from rural and cooperative banks and 74 percent from government banks.

It said the distribution of loan borrowers across banking groups showed that rural and cooperative banks have maintained “a strong commitment to supporting agricultural borrowers, including small-scale farmers and fisherfolk.

Regional distribution of agricultural borrowers likewise showed that universal and commercial banks have a higher concentration in Luzon while the smaller banks are the same but with notably fewer borrowers in the National Capital Region (NCR).

Thrift banks have a higher number of borrowers in Mindanao while government banks show similar borrower numbers outside the NCR, with slightly more borrowers in Mindanao, said the BSP.

“In 2022, the average interest rates on agricultural loans ranged from 12 percent to 18 percent, higher than those on non-agricultural loans, which ranged from 7.5 percent to 16 percent,” noted the BSP.

Rural and cooperative banks within the NCR reported the highest rates, ranging from 16 percent to 21 percent. The smaller banks outside the NCR and the thrift banks showed a slightly broader range of rates, from 13 percent to 20 percent. In contrast, the big banks and government banks had lower interest rates on agricultural loans, ranging between 4.6 percent and 7.2 percent, and 3.3 percent and 6.6 percent, respectively, said the BSP.

The central bank reported that surveyed banking units had an average overall repayment loan rate of 67 percent, with government banks recording a higher rate of 70 percent. Some banking units attributed lower repayment rates in 2022 to the impact of the pandemic.

The overall non-performing loan (NPL) ratios for agricultural loans slightly declined from 7.3 percent in 2021 to 7.2 percent in 2022, with NCR-located rural and cooperative banks experiencing significant decreases in their NPL ratios for agricultural loans in 2022.

The survey also observed the following: strong financial performance and strategic capabilities of the surveyed banking units with increased net income; and most still require traditional loan securities from agricultural borrowers, mainly favoring real estate mortgages.

The CBS also noted that banking units “often face challenges when lending to the agricultural sector due to inherent risks like exposure to natural disasters, uncertain crop yields, fluctuating borrower incomes, and an aging population.”

The BSP said they “see it crucial to adopt measures that address information gaps in agricultural lending to boost confidence in extending credit to this sector.”

Generally, the report said the surveyed banks are optimistic about the next twelve months. “They anticipate favorable lending conditions for agricultural borrowers.  Specifically, they foresee improvements in loan volumes and quality, aiming to enhance profitability,” said the BSP.

The 2022 CBS is a collaborative effort between the Department of Agriculture-Agricultural Credit Policy Council and the BSP. The report aims to examine lending trends and policy implications concerning agricultural financing by leveraging branch-level data.

The CBS also evaluated banking units' agricultural lending activities in 2022 compared to 2021 including data on loan demand, borrower profiles, interest rates, repayment dynamics, profitability, risk management, challenges, and future plans.

The survey was done electronically nationwide and also includes digital banks, besides the traditional brick-and-mortar banks.