Banks lending more to small businesses

MANILA, Philippines — Loans extended by banks to micro, small and medium enterprises (MSMEs) have shown significant growth compared to a year ago, but the sector continues to fall short of the mandatory thresholds.

Data from the Bangko Sentral ng Pilipinas (BSP) showed that loans disbursed by banks to MSMEs jumped by 35.8 percent to P500.81 billion from January to September against the P368.78 billion released in the same period last year.

However, the banking sector’s overall compliance ratio of 4.55 percent as of end-September was still below the required 10 percent under Republic Act 6977 or the Magna Carta for SMEs.

The law mandates banks to earmark 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 also rose by 18.9 percent to P10.99 trillion during the nine-month period versus the previous level of P9.24 trillion. This means allocations for the MSME sector should have reached P1.1 trillion.

The BSP data showed that banks’ disbursements to micro and small enterprises surged by 49.8 percent to P204.89 billion from P136.78 billion. The amount remained short of the mandated P879.26 billion or eight percent as it only accounted for a 1.86-percent compliance.

Funds allocated to medium enterprises jumped by 27.6 percent to P295.92 billion from P231.99 billion, exceeding the required P219.81 billion. This also translated to a compliance ratio of 2.51 percent, higher than the mandated two percent.

MSMEs play an important role as they account 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 in credit and financial access.

Based on the type of bank, the compliance of universal and commercial banks to micro and small enterprises hit P139.44 billion as of September, equivalent to only 1.39 percent of their P10.1-trillion loan portfolio.

Compliance to medium-sized enterprises by big banks stood at P240.31 billion or 2.39 percent of their loan book.

The compliance of thrift banks to micro and small enterprises reached P25.8 billion or 3.79 percent of their P681.28-billion loan portfolio.

But thrift banks went beyond the credit quota for medium enterprises as their compliance to the sector hit P35.57 billion or 5.22 percent of their loan book.

On the other hand, the compliance of rural and cooperative banks to micro and small enterprises hit P39.24 billion during the nine-month period. This is equivalent to 17.38 percent of their P225.79-billion credit book. Their compliance to medium enterprises stood at P20 billion or 8.86 percent of their loan portfolio.

The central bank also noted that the compliance of digital banks to micro and small enterprises reached P410 million, representing 2.08 percent of their P19.72-billion loan portfolio.

The total compliance of digital banks to medium enterprises stood at around P40 million, or 0.22 percent of their loan book.