Bank lending in agriculture-agrarian rises in 1st half

MANILA, Philippines — Loans disbursed by Philippine banks for agriculture and agrarian reform grew by 11.1 percent to P847.95 billion in the first half of the year, but this remains short of the mandated threshold for both sectors.

Preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed the banking system was only able to allocate about 10.31 percent of its total loanable funds during the six-month period, way below the 25 percent mandate under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

The law retained the mandatory credit allocation in Presidential Decree 717 where 15 percent of banks’ total loanable funds are to be set aside for agriculture, while 10 percent should be made available for agrarian reform beneficiaries.

However, the central bank is now committed to implement RA 11901 or the Agriculture, Fisheries, and Rural Development Financing Enhancement Act of 2022 that now provides a comprehensive financing framework for the development of the agriculture and fisheries sector and rural communities.

Total loanable fund generated by banks increased by 10.8 percent to P8.22 trillion in end-June this year from P7.42 trillion in end June last year.

According to the BSP, the loans extended by the banks to the agriculture sector grew by 11.6 percent to P783.77 billion, for a 9.53 percent compliance ratio or below the required 15 percent.

The central bank said big banks or universal and commercial or big banks registered a compliance ratio of 9.66 percent after extending P746.43 billion to the agriculture sector while the ratio of thrift or mid-sized banks only reached 5.8 percent after granting P19.59 billion.

Rural banks extended P17.74 billion to the agriculture sector for a compliance ratio of 11.43 percent.

On the other hand, loans for agrarian reform declined by 10.3 percent to P64.18 billion in end-June. The ratio fell short of the mandated 10 percent with a compliance ratio of only 0.78 percent.

The compliance ratio of big banks for agrarian reform loans only reached 0.65 percent while that of thrift banks and rural and cooperative banks settled at 0.93 and 7.01 percent, respectively.

BSP Governor Felipe Medalla earlier said the central bank is committed to effectively implement the new Agri-Agra and Rural Financing law that aims to enhance access of rural communities and agricultural and fisheries households, including their micro, small, and medium enterprises (MSMEs), to much needed financial services and programs.

“The new law has been a priority legislative measure of the BSP since it considers the requirements of rural community beneficiaries from a holistic perspective, taking into account their evolving social networks and complex needs,” Medalla said.

Banks are no longer required to reserve 10 percent of their lending portfolio for agrarian reform beneficiaries and 15 percent for agricultural activities.

Instead, this new law provides banks with greater flexibility in allocating the combined 25 percent mandatory credit quota to a range of borrowers in the agriculture, fisheries, and agrarian reform sectors.

Moreover, banks that are unable to directly lend to rural community beneficiaries may contribute through other means, such as investing in debt and equity securities, undertaking agricultural value chain financing, and granting agri-business loans to fund agricultural and community-enhancing activities.