Banks given more time to extend loans to MSMEs

MANILA, Philippines — Banks have been given more time to use loans extended to micro, small, and medium enterprises, as well as large companies devastated by the  coronavirus  pandemic, as an alternative compliance to the reserve requirement, according to the Bangko Sentral ng Pilipinas (BSP).

BSP Deputy Governor Chuchi Fonacier said banks have one more year to use loan disbursements to MSMEs and large companies as compliance to the reserve requirement ratio until the end of 2022, instead of end of 2021.

“Yes, validity of MSME loans and loans to large enterprises as alternative compliance with the reserve requirement is extended up to December 2022 instead of originally December 2021,” Fonacier told The STAR.

The extension, Fonacier said, would give banks and quasi-banks more time to study the risks of extending loans to MSMEs and large enterprises severely affected by the health crisis.

“This is to give time for banks and quasi banks to consider the nuances in lending to these sectors given the challenging situation,” she said.

The BSP requires banks to keep a minimum amount of cash reserves with the central bank determined by the amount of deposit liabilities owed to customers. It slashed the RRR for universal and commercial banks by 200 basis points on March 30, freeing up P200 billion into the financial system to boost economic activity.

The RRR for big banks has been reduced by 800 basis points to 12 percent from a high of 20 percent in early 2018 as part of its commitment to bring down the level to single digit by the middle of 2023, while that of thrift as well as rural and cooperative banks are currently at six and four percent, respectively.

The BSP issued Circular 1083 allowing banks and non-bank financial institutions with quasi-banking functions to recognize loans granted to MSMEs after March 15 as alternative compliance with the RRR starting April 24 this year to Dec. 30, 2021.

The regulator also issued Memorandum 2020 – 034 relaxing the credit risk weight for MSME loans to 50 percent instead of 75 percent until the end of next year for purposes of computing compliance with the central bank’s risk-based capital adequacy ratio (CAR).

MSMEs play a very important role contributing 35.7 percent of the total value added to the economy and accounts for 99.5 percent of the total establishments and employ 62.8 percent of the total labor force.

Likewise, the BSP issued Circular 1087 allowing banks to count large enterprises’ loans granted, renewed or restructured after March 15 providing the companies with assets of more than P100 million and workforce of 200 or more do not belong to conglomerates.

The regulator has been encouraging banks to lend more to MSMEs and large companies to restart the economy.