Loans to MSMEs steady at P447 billion in Q1

MANILA, Philippines — Loans extended by Philippine banks to micro, small, and medium enterprises (MSMEs) remained almost unchanged at P446.99 billion in the first quarter   from P448.26 billion in the same period last year, remaining below the mandated 10 percent threshold.

Data from the Bangko Sentral ng Pilipinas (BSP) showed the industry’s overall compliance ratio of 5.11 percent as of end-March remained below the required 10 percent under Republic Act 6977, as amended by RA 8289 and RA 9501 otherwise known as the Magna Carta for SMEs.

The law mandates banks to allot eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.

The industry’s total loan book net of exclusions inched up by 2.4 percent P8.75 trillion in end-March from P8.54 trillion in end-March last year. This means allocations for the MSME sector should have reached P875.59 billion.

The BSP data showed the banking system’s total credit allocation to micro and small enterprises reached P173.82 billion and remained short of the mandated P700.45 billion or eight percent, as it only accounted for a 1.99 percent compliance.

On the other hand, funds allocated to medium enterprises amounted to P273.17 billion and exceeded the required P175.11 billion. This translated to a compliance ratio of 3.12 percent exceeding the required two percent.

MSMEs play an important role in the economy, accounting for 99.5 percent of the total establishments and 62.8 percent of the total labor force. The sector also contributes 35.7 percent of the total value added to the Philippine economy.

However, MSMEs are unable to reach their full potential because of difficulty of credit and financial access, especially now that banks are risk averse due to uncertainties brought about by the   pandemic.

The BSP has adopted regulatory relief measures to reduce the financial burden on MSMEs. The   Monetary Board approved the temporary relaxation in the assigned credit risk weight for MSME lending in the computation of risk-based capital adequacy framework to 50 percent from 75 percent.

A lower credit risk weight would allow banks to lend more to the MSME sector than setting aside the amount to comply with capital requirements.

The regulator also approved the inclusion of MSME loans in the banks’ compliance with reserve requirement ratios to ensure adequate liquidity and credit in the financial system.

The BSP slashed the RRR for universal and commercial banks by 200 basis points and for mid-sized and small banks by 100 basis points last year. It also cut the minimum liquidity ratio (MLR) for stand-alone mid-sized and small banks to 16 percent from 20 percent to release more funds for lending.

The BSP also slashed interest rates by 200 basis points last year, bringing the overnight reverse repurchase rate to an all-time low of two percent.