Banks lending more to MSMEs

MANILA, Philippines — Loans extended by banks to micro, small, and medium enterprises (MSMEs) used as compliance with the central bank’s reserve requirement ratio (RRR) breached the P200 billion level, according to the Bangko Sentral ng Pilipinas Governor Benjamin Diokno.

Diokno said during his weekly virtual press conference that the amount disbursed to MSMEs as compliance to the RRR for the week ending Nov. 4 reached P202.2 billion.

The amount represents a substantial increase from the P8.7 billion in MSME loans in April 2020 or since it allowed peso-denominated loans to MSMEs as alternative compliance with the reserve requirement to incentivize lending, he said.

The regulator requires banks to keep a minimum amount of cash reserves with the BSP determined by the amount of deposit liabilities owed to customers.

The central bank’s Monetary Board slashed the RRR for universal and commercial banks by 200 basis points in March last year and for thrift as well as rural and cooperative banks by 100 basis points effective July 31 last year as part of measures to soften the impact of the COVID-19 pandemic on the economy.

The regulator has allowed the new peso-denominated loans to MSMEs and critically impacted large enterprises that do not belong to a conglomerate to be counted as compliance with the BSP’s reserve requirement.

The amount disbursed as of early November was still within the P300-billion cap imposed by the regulator on the amount of MSME loans extended by banks used as alternative compliance to RRR.

Once the set limits are reached prior to end December 2022, the BSP could amend existing policy by closing the eligibility window on the use of the relief measure.

The regulator requires banks to keep a minimum amount of cash reserves with the BSP determined by the amount of deposit liabilities owed to customers. The RRR for big banks was slashed by 200 basis points in March last year and for thrift as well as rural and cooperative banks by 100 basis points effective last July 31 last year to soften the impact of the COVID-19 pandemic.

The measure allowing banks to use additional loans to MSMEs and large enterprises severely affected by the pandemic as alternative compliance to the RRR has been extended to the end of 2022 instead of end of 2021, giving the industry more time to study the risks of extending such loans.

The regulator also provided additional relief measures on restructured loans and on the impact of loan provisioning on bank capital to motivate BSP-supervised financial institutions (BSFIs) to grant new loans and extend financial relief to borrowers amid the pandemic.

“The recently issued twin relief measures reinforce the government’s national efforts aimed at supporting the country’s steady path towards balanced growth,” Diokno said.

The BSP chief reported the level of restructured loans surged by 2.6 times settling at P338.5 billion as of end-September this year from the P130.9 billion in same period last year.  This resulted to a rise in restructured loans as a proportion to total loan portfolio to 3.1 percent from 1.2 percent.

“With the continued normalization of economic activity, sustained financing to households and productive enterprises will be crucial to their recovery and resumption of operations,” added the Governor.

The measure on restructured loans reminds BSFIs to take a more flexible and systematic approach in modifying terms and conditions of loans by considering the changes in the projected cash flows of their borrowers.

In this regard, modifications to loan terms that are appropriately tailored to the borrower’s circumstances will not only increase probability of collection but would also generally result in the loan being classified as performing.

Complementary to this, the BSP also issued a measure that softens the impact of provisioning for loans on banks’ capital, allowing banks to add back to their capital the net increase in provisioning for loans tagged as performing or underperforming under the first measure.