Loans to MSMEs hit P440 billion in 9 months

MANILA, Philippines — Loans extended by Philippine banks to micro, small and medium enterprises (MSMEs) slipped by 5.2 percent in the first nine months of 2021 and remained below the mandated 10 percent threshold, according to the Bangko Sentral ng Pilipinas (BSP).

Lending to the MSME sector amounted to P440.34 billion from January to September last year, P24 billion lower compared to the previous year’s P464.35 billion.

According to the BSP, the banking system’s overall compliance ratio of 5.21 percent in end-September last year remained below the required 10 percent 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.

The industry’s total loan book amounted to P8.45 trillion in end-September last year which means allocations for the MSME sector should have reached P844.6 billion. The figure was 1.86 percent lower than the loanable funds of P8.61 trillion in September 2020.

The banking system’s total credit allocation to micro and small enterprises reached P171.8 billion and remained short of the mandated P675.72 billion or eight percent of total as it only accounted for a 2.03 percent compliance.

On the other hand, funds allocated to medium enterprises amounted to P268.54 billion or higher than the required P168.93 billion. This translated to a compliance ratio of 3.18 percent, exceeding the required two percent.

MSMEs account for 99.5 percent of the total establishments and employ 62.8 percent of the total labor force.

However, MSMEs are unable to reach their full potential because of difficulty of credit and financial access especially now that banks are risk averse due to uncertainties brought about by the pandemic.

The BSP has been adopting regulatory relief measures to reduce the financial burden on MSMEs. The 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 75 percent.

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