MSME loans reach P457 billion in end-April

MANILA, Philippines — Loans extended by Philippine banks to micro, small and medium enterprises (MSMEs) reached P457 billion as of end-April as the Bangko Sentral ng Pilipinas (BSP) urges financial institutions to lend more to the sector.

BSP Governor Benjamin Diokno said the level was slightly lower than the end 2019 level as economic activity has been affected by the enhanced community quarantine imposed in Luzon on March 16 to limit the  spread of   coronavirus disease 2019 or COVID-19.

“This is a bit lower than the level as of end-December 2019. Realistically, of course, we cannot expect a dramatic rise in lending to MSMEs yet at this time,” Diokno said.

He also said the lower MSME loan take-up was expected as the sector continues to reassess their business strategies and operations.

MSMEs contribute more than 35 percent of the total value added,  account for 99.5 percent of the total establishments and employ nearly 63 percent of the total labor force.

However, MSMEs are unable to reach their full potential because of difficulty of credit and financial access.

Data showed loans extended to MSMEs reached P579.24 billion last year,  P4.46 billion higher than the P574.78 billion recorded  in 2018 for an overall compliance ratio of 7.1 percent which was  below the required 10 percent mandated 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 earmark eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.

Diokno said the regulator has approved prudential measures to assist the MSME sector that play a vital role in the economy.

For one, the central bank’s 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 the current 75 percent until end December next year.

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 of the banks’ compliance with reserve requirement ratios to ensure adequate liquidity and credit in the financial system.