Banks still fall short of agriculture and agrarian reform loan limit

Despite Heavy Fines

MANILA, Philippines — Philippine banks continued to fall short of the mandated loan thresholds for agriculture and agrarian reform, according to a report from the Bangko Sentral ng Pilipinas.

The BSP reported the banking system was able to set aside a total of P644.64 billion of total loanable funds for agriculture and agrarian reform credit under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 in the first nine months of 2018.

The total loanable funds generated by the banking industry amounted to P4.69 trillion from January to September last year.

Despite the increase, the combined allocation of loanable funds from agriculture and agrarian reform of 13.74 percent was way below the minimum threshold set by the law.

RA 10000 retained the mandatory credit allocation in Presidential Decree 717 where 25 percent of banks’ total loanable funds are to be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries.

The BSP reported the loans extended by the banks to the agriculture sector amounted to P598.26 billion for 12.75 percent compliance ratio or below the required 15 percent.

The central bank said big banks or universal and commercial banks registered a compliance ratio of 12.95 percent after extending P563.69 billion to the agriculture sector while the ratio of thrift banks only reached 6.19 percent after granting P16.14 billion.

Rural banks extended P18.44 billion to the agriculture sector for a compliance ratio of 24.19 percent.

Likewise, the compliance ratio of the banking system fell way short of the 10 percent threshold for agrarian reform credit as banks only extended loans amounting to P46.37 billion for a compliance ratio of 0.99 percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.79 percent while that of thrift banks settled at 1.2 percent as well as rural and cooperative banks with 11.79 percent.

Monetary Board member Bruce Tolentino had said fines collected by the BSP from banks that fail to reach the 15 percent agriculture and 10 percent agrarian reform to beneficiaries under the agri-agra reform law have reached P6 billion over the last two years.

“Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay. I think over the last two years it has been something like P6 billion in penalties alone,” he said.

The bulk or 45 percent of the total collections go to the Philippine Crop Insurance Corp. (PCIC) to sustain its operations, while another 45 percent beef up the agriculture guarantee fund pool managed by the state-run Land Bank of the Philippines.

The 10 percent is left with the BSP to cover administrative costs.

Data from the Agricultural Policy Credit Council (ACPC) showed the credit gap in the agriculture sector stood at P367 billion as of end 2016 as the percentage of loans for agriculture along with fisheries and forestry was at a paltry 2.9 percent of total loans, significantly lower compared to the respective shares of consumer and real estate loans at 17.5 percent and 19.9 percent.