Anti-money laundering among top concerns of Philippines banks

MANILA, Philippines — Compliance with mandatory credits to agriculture and agrarian (agri-agra) reform, as well as anti-money laundering continue to be the most challenging areas for banks and financial institutions, according to the Bangko Sentral ng Pilipinas (BSP).

The BSP said most banking groups’ difficulty with Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 has been noted in the previous results of the Banking Sector Outlook Survey (BSOS).

Domestic and foreign universal and commercial banks, as well as thrift banks, have tagged the law as the most challenging to comply with based on the latest results of the survey.

“Except for rural and cooperative banks, compliance with mandatory credits to agri-agra remains as the most challenging since the complex business models of bigger banks may not be suited to lend to the agri-agra sector,” the BSP said.

The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries.

Latest data from the central bank showed the loans extended by the banks to the agriculture sector amounted to P639.82 billion in end-March last year for an 11.02 percent compliance ratio or below the required 15 percent.

The BSP said big banks or universal and commercial or big banks registered a compliance ratio of 11.15 percent after extending P603.08 billion to the agriculture sector, while the ratio of thrift or mid-sized banks only reached 6.61 percent after granting P19.32 billion.

Rural banks extended P17.42 billion to the agriculture sector for a compliance ratio of 16.8 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 P56.53 billion for a compliance ratio of less than one percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.84 percent while that of thrift banks settled at 1.15 percent as well as rural and cooperative banks with 7.36 percent.

“Nonetheless, penalties have been collected from banks which have failed to fully comply with the mandatory agri-agra credit allocation,” the BSP said as the banks opted to pay P10.3 billion worth of fines over the past decade.

The regulator is now working with relevant government agencies on the amendments to Agri-Agra Law to strengthen rural development by providing for a holistic approach that takes into account the broader agricultural financing ecosystem and rural community development requirements.

The BSP said banks also cited regulations on credit risk management, anti-money laundering, information technology (IT) risk management, and operational risk management as the most challenging areas in terms of compliance with the central bank’s regulatory framework.

“Technology risk also remained as one of the risks common to banks due to the increasing support on technology-enabled solutions. Likewise, financial market risk transpired as one of the risks common to thrift as well as rural and cooperative banks,” it said.