Risk sharing in mandatory loans suggested

A RISK-SHARING agreement between the banking industry and the government could facilitate compulsory lending to farmers and small businesses, the director of the Bank of the Philippine Islands (BPI) said last week.

Speaking at The Manila Times online business forum, BPI Chairman and CEO Teodoro Limcaoco noted that there was a lot of talk about how lenders were helping the agricultural and micro sector, small and medium-sized enterprises (MSMEs).

“[I]f you listened to Governor of BSP (Bangko Sentral ng Pilipinas) [Felipe] Medalla…a few days ago he said very clearly that the worst way was to make loans compulsory and pass a law that says you have to lend X to sector X. He said it very explicitly, and I agree with him,” he said.

Limcaoco recommended a comprehensive strategy that includes providing the necessary infrastructure as well as risk sharing since the amount of money banks have to lend is quite large.

“The reality is that, and a lot of people don’t realize – maybe a lot of people realize but don’t want to accept – is that the banks, when we lend, we also have to lend to viable credible and worthwhile projects “We don’t lend our money, we lend your money, and so we want to be able to get it back,” he said.

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Bank lending to the agriculture and land reform sectors, as well as to MSMEs, remains below the minimum level prescribed by law based on BSP data.

As of December 31, 2021, the banking system had reserved P851.75 billion for the agricultural sector, up 19.36% from the previous year. The combined allocation for agriculture and land reform, at 10.65 percent of the total loanable funds of P7.99 trillion, was considerably lower than the 25 percent specified under the Republic Act (RA ) 10000, or the “Farm Credit Reform Act of 2009”.

Meanwhile, RA 6977, or the “Magna Carta for MSMEs”, provided funding of 875.56 billion pesos for MSMEs at the end of March this year, but only 446.98 billion pesos have been allocated. The sum was well below the required minimum of 10% to just 5.11% of total loanable funds of P8.75 trillion in the first quarter of this year.

Despite this, Limcaoco claimed that the banking sector has been very helpful to the target sectors and has tried hard to comply with the law. For BPI alone, he said the lender was about 65% compliant with mandatory agricultural loans.

“Whereas we are required to lend 10% of our loanable funds to this sector, we now lend 6.5% of that, and…it’s about 150 to 120 billion pesos in this sector,” he said. declared. said.

If the government wanted to push compliance, risk sharing is probably the best method to use, he continued.

“[L]We’re working on a risk-sharing arrangement where the banks take on some of the risk, but also with government encouragement so that we’re both aligned, and it’s just not that we have to lend to projects that are potentially not viable,” he said,

He added that when banks fail to comply, they are penalized and the fines paid go into a government-run fund to help the same sectors.

“So that helps, that happens anyway. So we just have to manage the risk, because as banks we also have to be careful about our lending, because we’re not lending our capital, we’re lending your deposits” , says Limcaoco.

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