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Business

Banks given more leeway in lending to other sectors

Lawrence Agcaoili - The Philippine Star

MANILA, Philippines — The new law providing a comprehensive financing framework for the development of the agriculture, fisheries sector, and rural communities would equip banks with greater flexibility in allocating their resources, according to Bangko Sentral ng Pilipinas Governor Felipe Medalla.

Medalla said the central bank is committed to effectively implement Republic Act  11901 or the Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022 to enhance access of rural communities and agricultural and fisheries households, including their micro, small, and medium enterprises (MSMEs) to much needed financial services and programs.

“The new agri-agra and rural financing law has been a priority legislative measure of the BSP since it considers the requirements of rural community beneficiaries from a holistic perspective, taking into account their evolving social networks and complex needs,” Medalla said.

The new law broadens activities for agricultural credit and rural development financing to include agri-tourism, digitalization of agricultural activities and processes, public rural infrastructure, programs that promote health and wellness of rural communities, and activities that improve livelihood skills.

It also promotes financing toward environmental, social, and governance projects, including green projects that support sustainable and inclusive economic growth.

According to the BSP, banks are no longer required to reserve 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities as mandated under RA 10000 or the Agri-Agra Reform Credit Act of 2009.

The central bank explained the new law provides banks with greater flexibility in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors.

Moreover, banks that are unable to directly lend to rural community beneficiaries may contribute through other means, such as investing in debt and equity securities, undertaking agricultural value chain financing, and granting agri-business loans to fund agricultural and community-enhancing activities.

In addition, the law provides a mechanism to finance organizational, capacity, and institution-building programs to improve competitiveness and productivity in agriculture and fisheries as well as rural communities.

“The enactment of the new Agri-Agra and Rural Financing law is a timely and positive development since it will assist the sector’s recovery from the impact of the COVID-19 pandemic and other natural calamities through private sector financing,” Medalla said.

Last year, loans disbursed by the banking sector for agriculture and agrarian reform increased by 19.3 percent to P851.66 billion from P713.6 billion in 2020 but the industry continued to fall short of the mandated threshold for the sector.

The banking system was only able to allocate about 10.65 percent of its total loanable funds, way below the 25 percent mandated under the old law.

Total loanable fund generated by Philippine banks went up by 15 percent to P7.99 trillion last year from P7.14 trillion in 2020.

According to the BSP, the loans extended by the banks to the agriculture sector grew by 20.9 percent to P776.44 billion for a 9.71 percent compliance ratio or below the required 15 percent.

Loans for agrarian reform extended by banks went up by 5.7 percent to P75.32 billion. However, the amount still fell short of the mandated 10 percent with a compliance ratio of only 0.94 percent.

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