Lockdown banking

As we go on to third week of lockdown, we are already experiencing first hand how micro, small and medium enterprises (MSMEs) are dying. For several days now, our favorite restaurants for take-out are no longer operating.

We think about the entrepreneurs who each risked not just a few million pesos to put up their restaurant business. We wonder how the waiters and the cooks will manage their daily needs now that they are out of jobs.

President Duterte got his emergency powers and hundreds of billions of pesos in the National Treasury he can spend as he sees fit to alleviate the nasty economic effects of the lockdown. The money and good intentions are still largely theoretical.

It is easy to get Congress to pass a law supposedly to help entrepreneurs and ordinary people during this period of emergency. But I would be surprised if emergency power pushed a centavo of contemplated assistance to anyone who should get it, three weeks into the lockdown.

MSMEs badly need timely assistance. MSMEs employ the most people, make up 99.6 percent of all registered businesses in the Philippines and employ over 70 percent of the working population.

MSMEs are running out of working capital, Duterte’s adviser for entrepreneurship Jose Maria A. Concepcion III warned. Joey dreads the thought of a second lockdown, which seems likely.

“It will be a big problem for MSMEs because their working capital has been wiped out in this first round,” Joey said. Mr. Concepcion added that the main problem of MSMEs during the COVID-19 outbreak is that they cannot obtain additional funding from banks.

“Banks are worried about a loss of confidence which could collapse the system, so they are pulling back. They’re doing selective lending, so the MSMEs are really going to take a hit,” he said.

One entrepreneur in one of my Viber groups complained: “Do we know if the BSP or IATF is aware of the moral hazard created by the Bayanihan Act? Banks are requiring business to waive any rights under the act before allowing us to draw existing approved and committed lines.

“My SME manufacturing company is being held hostage by my bank. If I don’t sign a waiver, they won’t release P2 million needed for salaries... can’t collect from my client who is in lockdown and can’t release the check.

 “To blackmail like this during lockdown is unconscionable. Salaries of workers need to be prioritized by the banks!

“Several banks now require that waiver before release or roll over of loans. Worse, banks are now risk averse even to existing good clients.

“Key term being waived is our right to benefit from the grace period under the Bayanihan Act.

“The issue is not with SMEs whose drawdowns are insignificant. What is P2 million to a big bank? The banks are protecting themselves because they gave enormous lines to the big guys. The banks are essentially sabotaging government moves to help the people.”

I asked a friend to check with the top person in the bank complained of here. Of course, the bank owner denied they are screwing their clients.

It is a matter of self-preservation and never mind the social responsibility to help society get over this crisis. They will donate a few PPEs and face masks, issue a press release, and the public will think they are angels from heaven.

As my son, a former banker in Singapore once told me when I asked why he was giving up that big salary, enormous bonuses and other mouth-watering perks: “Pop, bankers are not nice people. I want to do something else more socially rewarding.”  

So, the theory of government assistance, including the Bayanihan Law, is not going to save our economy because it is tough to implement in real life.

One friend commented on my FB wall, “while central banks are downloading billions to banks, no one seems to know how to get it to where it matters most, the MSMEs.”

My friend continued: “This has been a long and huge discussion among business owners in my circle. Checks are now bouncing all over and many people are not getting paid.

“The reality is many enterprises in this sector have a foot in and out of the informal sector, not everything is so easily complied with for SME’s specially with the myriad of compliance and endless rules of all the government agencies.

“Monetary easing has put more liquidity in the market, but SME’s are hardly affected. Ask business owners if they feel the lower BSP interest? Banks are not lowering their interest rates. The best they do is allow a late payment date by 30 days without penalty. No new loans…

“It’s already a disaster now, even if it ends in two weeks. We’re looking at a situation similar to 1984 and 1985 when lots of businesses closed not because of ruinous interest rates, but due to lack of demand.

“Let’s not even get started on our workers who are going to need money to survive.

“Most of the announced monetary easing, loose credit will benefit the biggest companies, the ones who ironically can ride out the storm the best. It’s hard to imagine any lifeline being effectively extended to SME sectors.

“Companies with sales of 10s to 100s of millions, depending on the industry, don’t have a lot of leverage with banks and other types of creditors, yet they inordinately employ the bigger number of working people.

“Let’s not even begin to talk about microenterprises, those with sales less than a million, they’re hand to mouth and already dead at this point.

“I think the real question right now during this acute phase of lockdown is which of our banks are fulfilling their obligations and performing their social responsibility.”

It does seem that the banks are behaving like they would in a financial crisis and their behavior is actually accelerating a financial crisis. The Bayanihan Act is designed to help, but because of bank behavior the opposite is happening.

Let’s see what the bright boys at BSP and DOF will do to get Duterte’s intention realized on the ground.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco