Economy · August 5, 2022

Risk sharing in the bonded loan is suggested

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

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

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

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

“The reality is, and many people don’t realize – maybe many people realize but don’t want to accept – is that banks, when we lend, we also have to lend to credible, valid and feasible projects, right” We are not lending our money, we are lending your money, and so we want to be able to collect it, “he said.

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Bank lending to the agriculture and land reform sectors, as well as to SMEs, remain below the minimum level imposed by law based on BSP data.

As of December On December 31, 2021, the banking system allocated 851.75 billion pounds to the agricultural sector, up 19.36% over the previous year. The combined budget for agriculture and land reform, equal to 10.65% of the total loanable funds of £ 7.99 trillion, was significantly less than the 25% specified by the Republic Act (RA) 10000 or the “Agri-Agra Reform Credit Act of 2009 “.

Meanwhile, RA 6977, or “Magna Carta for MSMEs”, has requested P875.56 billion in funding for MSMEs as of the end of March this year, but only P446.98 billion has been allocated. The sum was far below the required minimum of 10 percent at just 5.11 percent of the total loanable funds of P8.75 trillion as of the first quarter of this year.

Despite this, Limcaoco said the banking sector was very helpful to the target sectors and made an effort to comply with the law. For BPI alone, it claimed that the lender was about 65% compliant with the mandatory farm loan.

“While we’re being required to lend 10 percent of our loanable funds in that industry, we’re now lending six and a half percent of that, and … that’s about P150-P120 billion in that industry,” hey said.

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

“[L]We work with a risk-sharing arrangement where the banks take on some of the risks, but also with the encouragement of the government so that we are both aligned, and we are simply not forced to lend to projects that are potentially not viable. ” he said,

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

“So it helps, it goes everywhere anyway. So we just have to manage the risk because as banks, we also have to be cautious about our loans because we’re not lending our capital, we’re lending your deposits,” Limcaoco said.