MANILA, Philippines – The Bangko Sentral ng Pilipinas (BSP) is amenable to adjust the provisions under the agri-agra law, which mandates banks to set aside 25 percent of their loanable funds for the farm sector.
“The BSP has long advocated that there are challenges in mandatory credit,” BSP Deputy Governor Nestor A. Espenilla Jr. told reporters.
Espenilla was reacting to a comment by Batangas Rep. Nelson Collantes, who said the congress may amend Republic Act 10000 or the new agri-agra law in order to gradually decrease the mandated 25 percent lending to the agriculture sector.
Collantes currently chairs the House Committee on banks and financial intermediaries.
“What’s happening right now is basically, banks are torn between two conflicting demands,” Espenilla recounted.
“On one hand, the law says lend to this segment that they may or may not be ready to lend to, and on the other hand, the BSP which is implementing banking laws on safety standards is asking banks to be prudent in lending,” he said.
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“So what happens is that they protect their balance sheets so they end up paying penalties if they cannot lend contrary to expectations of the law,” he added.
The BSP in 2011 issued the implementing rules and regulations for the new agri-agra law.
Banks may opt to lend to the agriculture sector or lend to accredited rural financial institutions, which will re-lend these funds to the end-users.
The law also require banks to pay monetary penalties on non-compliance.
Espenilla said that it is interesting to note that some banks prefer to pay penalties instead of lending to the agriculture sector, one of the riskier industries.
He said lending to the industry is very difficult for some banks as agriculture productivity is very dependent on the unpredictable weather. Moreover, the sector’s profitability is hampered by lack of infrastructure.
Teodoro Limcaoco, president of the Chamber of Thrift Banks, agreed with Espenilla’s view.
“As an industry, I guess we always feel that mandated lending isn’t quite appropriate,” Limcaoco, who also sits as president of BPI Family Savings Bank, told reporters.
“One, you have to look at whether the industry that is targeted can absorb all these funding. Two, we are trustees of people’s deposits so we have to make a decision whether the risk of lending to those industries is appropriate,” he said.