A year before inflation worsened, agricultural loans hobbled in 2021

MANILA, Philippines — Lending to the Philippines’ oft-neglected agriculture sector remains tepid, considering the perennial struggles on food security that was exacerbated by the pandemic.

Results of the Bangko Sentral ng Pilipinas’ 2021 Countryside Bank Survey Baseline Report showed that the share of agricultural loans granted by banks amounted to 11-15% of their total loan portfolio. This was lower compared to 2020 levels, considering the uncertainties that roiled the sector at the height of the pandemic.

To add, data from the BSP survey, which randomly polled 2,530 banks, found that the number of borrowers from the agricultural sector shrank by 30% year-on-year in 2021.

The figures show a glimpse into the struggles that the sector faces perenially, even as past administrations assured some measure of relief would trickle down to stakeholders. 

The farm sector historically accounts for 10% of the Philippines’ gross domestic product, but missteps in policy and reforms kept workers languishing in poverty. 

Zooming in, the BSP reported that demand for agricultural loans were wanting, considering that interest rates in 2021 were still pegged at the historically-low 2%. 

Borrowing costs on this loan type, which stood higher than those set by state-owned banks and privat universal and commercial banks, were at par with those set by thrift banks and private rural and cooperative banks located in and out of Metro Manila.

Despite this, banks who responded to the BSP’s survey were optimistic in the 2022 outturn since demand improved. 

The data showed that 76% of those who availed of these agricultural loans were considered small borrowers. 

Domini Velasquez, chief economist at China Banking Corp., said the figures may have been caused by strict credit standards imposed by banks in 2021. As she sees it, cooperatives within the sector are in for a fight. 

“Moving forward, the challenge will be to have stronger agricultural cooperatives so that they can leverage their case to banks,” Velasquez said in a Viber message. 

The data showed that 65% of banks who responded to the BSP survey required and accepted loan securities, most of which were real estate mortgages.

The same BSP report showed that 76% of banks surveyed are looking to boosting lending to the agricultural sector in the next 12 months. Most thrift banks were keen on expanding their agricultural loan portfolio. 

“More than just access to loans, increasing agricultural productivity through access to cheaper farm inputs, use of big data to assess demand-supply mismatch, better post-harvest facilities, and investments in research and development should help the country's plight in addressing food security,” Velasquez added. 

Nicholas Antonio Mapa, senior economist at ING Bank in Manila, said the sector’s plight hit hard since the country is struggling with rising inflation. 

“The sector is in need of support and investments and the recent amendments to the Agri-Agra Law will hopefully help channel credit to this sector,” he said. 

On the other hand, Leonardo Lanzona, an economist at Ateneo De Manila university, considers this an optimal way that the financial sector can engage with the agriculture sector. 

“Financial institutions however are not incentivized to operate in agriculture which is susceptible to calamities and  natural disasters, making any engaging risky. The government can thus play a major role by supporting insurance markets in agriculture,” he said.