Time to be prudent

If there is one message the onslaught of super typhoon Yolanda has so savagely delivered to numerous businesses in the country, it’s that the debilitating impact of natural calamities has been increasingly harder to predict, much less prepare for. Climate change has rewritten the rules of Mother Nature. What used to be regarded as “un-floodable” and immune to typhoons had already been heavily flooded and rained out to submission. No place is immune, no place is safe.

Perhaps now is the appropriate time to revisit a rule that adversely affects rural banks’ profitability by tying their balance sheet to the fate of agriculture, one sector that is heavily dependent on the whims of the weather.

The Bangko Sentral ng Pilipinas (BSP) is already open to the possibility of amending some of the provisions under Republic Act 10000, also known as “The Agri-Agra Reform Credit Act of 2009,” saying that the mandatory credit policy runs in conflict with safe and sound banking practices.

The Agri-Agra Law, which superseded Presidential Decree 717, was enacted to provide adequate credit sources for the agriculture sector that accounts for a tenth of the domestic economy. Under the law, banks are required to allot at least 25 percent of their total loanable funds for agriculture and agrarian credit. Ten percent of which should be set-aside for agrarian reform beneficiaries, while the remaining 15 percent should be allotted to agriculture and fisheries.

Aside from direct lending, cash infusion to rural and thrift banks is also one of way of complying with the law, aside from investments in securities issued by Development Bank of the Philippines and Land Bank of the Philippines, investments in shares of Quedan and Rural Credit Guarantee Corp. as well as lending to construction of farm infrastructure such as farm-to-market roads.

The law also metes out an annual penalty of one-half of one percent of the amount of non-compliance/under-compliance. Ironically, some banks would rather pay the fine instead of lending to agriculture at this point.

Seeing this, no less than the House Committee on Banks and Financial Intermediaries Chairman Sonny Collantes said during the RBAP 56th Charter Anniversary Symposium that there is a need for legislators to review the law fearing that it might have lost its relevance. He said the House of Representatives may consider gradual reduction of the mandatory 25% loan allocation to a more “feasible percentage” or possibly abolish the 25% allocation requirement and make the Land Bank of the Philippines solely responsible for credit allocation to the mandated sectors.

However, it is important to note that the rural banking industry is not running away from its responsibility to the poor, especially during these trying times but they have to play it smart. As trustees of rural folks’ hard-earned money, it is extremely difficult to be tied down to a sector that is quite literally as fair-weathered as they come.

It is unfair for rural banks, as well as for their total client base, to be forced to lend to a segment that puts banks and the money of their depositors at risk. Rural banks can better serve their customers if they are still in business and not reeling from unprofitability and tied to a non-earning venture.

The rural banking industry commends the kindness of those who have donated to the victims of Yolanda, as we all as praised the bravery of those who have personally assisted in the rehabilitation efforts in Tacloban and other affected areas.

But right now, as far as compliance to the Agri-Agra Law is concerned, discretion is the better part of valor.