Banks overregulated, review needed — Diokno

MANILA, Philippines — The Bangko Sentral ng Pilipinas is reviewing all regulations covering banks and financial institutions in the country as the banking sector is already over-regulated.

According to BSP Governor Benjamin Diokno, the central bank is reviewing all previous circulars issued as far back as the 1970s to find which regulations could be repealed or amended to make it easier for banks and financial institutions to lend.

“I personally believe that our banks are overregulated. We are actually reviewing all the previous circulars as far back as the 1970s to find out which of them we can actually amend or repeal, etc, so that we can give the banking community greater flexibility to do their job,” Diokno said.

For one, Diokno said the Monetary Board is unanimous that the central bank has to do something about the implementation of Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009.

The law retained the mandatory credit allocation in Presidential Decree 717 where 25 percent of banks’ total loanable funds are to be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries.

“You know simply it’s a tax on banks. We open up in this country, we invited foreigners and yet we require them to also invest in this agri-agra and they are having a hard time complying with this requirement,” he said.

Monetary Board member Bruce Tolentino had said fines collected by the BSP from banks that fail to reach the 15 percent agriculture and 10 percent agrarian reform to beneficiaries under the Agri-Agra Reform Law have reached P6 billion over the last two years.

“Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay. I think over the last two years it has been something like P6 billion in penalties alone,” he said.

Latest data from the BSP showed loans extended by banks for agri-agra reached P707.4 billion or 14.3 percent of the P4.96-trillion total loanable portfolio and again failed to meet the 25 percent threshold.

BSP Deputy Governor Chuchi Fonacier had said the BSP believes the best regulatory approach remains to be one that is enabling.

“An enabling regulatory environment provides high level principles rather than mandatory requirements and considers the business model as well as the size, structure, and complexity of operations of a bank in defining expectations on sustainable finance,” Fonacier said.

The BSP has adopted a two-pronged approach in introducing environmental, social, and governance (ESG) principles via capacity building and awareness campaign as well as by mainstreaming ESG through the issuance of enabling regulations.

Fonacier warned government-driven, mandatory approaches to sustainable finance may result to immediate changes in the compliance of financial institutions.

“The success of this approach may be short-lived and may even derail our progress in embedding ESG in the financial industry. Some banks may even opt to pay penalties rather than get exposed to uncertain risks,” she said.