Big banks fail to meet lending quota

ONLY RURAL and cooperative banks met the required amount of credit extended to micro-, small- and medium-scale enterprises (MSMEs) during the first quarter, central bank data showed, despite an overall increase in total loans from a year ago.

Universal, commercial, and thrift banks failed to comply with the required level of lending to small firms set at 8% of their total loan portfolio, according to data from the Bangko Sentral ng Pilipinas (BSP), though they went above quota for credit to medium-sized entities.

Passed in 1991 and last amended eight years ago, Republic Act 6977 or the Magna Carta for Micro, Small and Medium Enterprises mandates banks to allot 10% of their total loanable funds to these small firms to help boost the sector. Broken down, banks must set aside 8% of their loan portfolio for micro and small-sized firms and 2% to medium-scale companies.

The law seeks to boost financial support to MSMEs and maximize their contribution to the local economy by addressing the problems of lack of capital and poor access to credit.

Philippine MSMEs account for 99% of local firms and 60% of employment but contribute only 36% of gross value added, according to the May 2016 Investment Policy Review of the Organization for Economic Cooperation and Development.

Loans extended by big banks to micro and small companies stood at P128.516 billion for the first three months, or just 3.02% of their P4.251-trillion total loanable amount.

This total’s share against banks’ entire loan book went down from 3.38% last year, although the figure rose from P125.056 billion.

Thrift banks also lent P41.808 billion to small firms as of March, just 6.55% of P638.612 billion in loanable funds. This share is also lower than the 7.03% ratio tallied during the comparable year-ago period, data showed.

In contrast, rural and cooperative lenders extended nearly three times the required amount to be lent small firms, reaching nearly a fourth of their loan portfolio. The banks handed out P21.874-billion credit to MSMEs, well above the P7.438 billion minimum.

These banks also allotted more than a tenth of their loan funds as credit to medium-scale firms, reaching P9.571 billion against the P1.859-billion floor. Rural and cooperative banks had a combined total loan portfolio of P92.969 billion, based on BSP data.

In terms of lending to medium-sized firms, big banks and thrift lenders handed out more than the 2% mandatory share of total loans. Universal and commercial banks extended P217.862 billion in loans to these entities or 5.12% of their loanable funds, while thrift lenders handed out P39.847 billion, or 6.24% of their portfolio.

Under the law, banks are penalized P500,000 a year if they do not set aside funds to be loaned out to MSMEs. If a bank falls short of the credit quota, the penalty will depend on how close they are to meeting the percentage requirement. Some lenders simply opt to pay fines for non-compliance rather than take the risk of loaning to the small firms.

Overall, the local banking system freed up P459.478 billion for MSME credit, which made up 9.22% of the P4.983 trillion in total loanable funds during the quarter. This amount is higher than the P427.047 billion in MSME loans granted last year, though slightly lower than the previous 9.85% share.

Total loans granted to MSMEs reached P495.779 billion in 2015, roughly 10.5% of total loanable funds amounting to P4.703 trillion. – Business World Online, July 19, 2016