Philippine banks’ loans to micro, small and medium enterprises (MSMEs) rose more than seven percent in the third quarter, surpassing the half-trillion peso mark as business activity picked up ahead of the holiday season.

Total MSME loans reached ₱540.9 billion as of the third quarter, an increase from the ₱504.8 billion recorded in the same period last year, according to the latest data from the Bangko Sentral ng Pilipinas (BSP). 
The latest figure, however, only accounted for 4.5 percent of the country’s entire banking industry’s ₱12.05 trillion lending portfolio, significantly falling short of the BSP-prescribed 10 percent ratio.

Banks are mandated to allocate eight percent of their loan portfolio to MSEs and two percent to medium-sized enterprises.

Lending to medium enterprises stood at ₱311.3 billion in the July-September period. This represented 2.6 percent of their total loan book, exceeding the two percent regulatory requirement. The amount was 5.2 percent higher than the ₱295.9 billion recorded in the previous year but 2.8 percent lower than the second quarter’s level.

In contrast, loans disbursed to MSEs totaled ₱225.2 billion, equivalent to just 1.9 percent of the loan book, missing the eigh percent target. BSP figures indicate lenders should have set aside a minimum of ₱963.9 billion for MSE borrowing. This third-quarter figure for MSEs was 9.9 percent higher than the previous year and up from the prior quarter’s ₱220.6 billion.

Universal and commercial banks, or big banks, extended ₱144.3 billion in loans to MSEs during the third quarter, which is equivalent to 1.3 percent of their ₱11-trillion loan portfolio. Their loans to medium enterprises amounted to ₱254.1 billion, representing 2.3 percent of their total loan book.

Thrift banks lent ₱45.9 billion to MSEs, making up 5.3 percent of their ₱859.6-billion loan book. Their loans to medium enterprises reached ₱36.5 billion, also accounting for 5.3 percent of their portfolio.

Rural and cooperative banks were the only segment that met and surpassed the overall MSME lending requirements. They disbursed ₱34.3 billion to MSEs, which is 20.3 percent of their ₱168.6-billion portfolio. They also lent out ₱20.7 billion to medium enterprises, 12.3 percent of their total loans.

Digital banks disbursed ₱660 million to MSEs during the quarter, accounting for 1.6 percent of their ₱40.9-billion loan book, while lending to medium enterprises amounted to ₱70 million, or just 0.2 percent of the total.

The growth in lending reflects a "steady recovery in business activity, especially in retail, food, logistics, and service sectors that tend to expand ahead of the holiday season," said John Paolo Rivera, a senior research fellow at the Philippine Institute for Development Studies (PIDS).

Rivera noted that banks are “more willing to lend as MSMEs show better cash flow and repayment performance compared to the pandemic years.”

He added that medium enterprises secured the largest share because they are typically seen as more “bankable,” possessing stronger financial records, better collateral, and clearer growth plans. In contrast, MSEs continue to face tighter borrowing requirements, resulting in a slower uptake of loans.