Banks lending more to small businesses

Lawrence Agcaoili – The Philippine Star

January 1, 2023 | 12:00am

But compliance ratio still way below threshold

MANILA, Philippines — Loans disbursed by banks to micro, small, and medium enterprises (MSMEs) rose by 3.2 percent to P454.31 billion from January to September compared to P440.34 billion in the same period in 2021, according to the Bangko Sentral ng Pilipinas (BSP).

The figure, however, remained below the mandated threshold.

The banking sector’s overall compliance ratio of 4.91 percent as of end-September is still well below the required 10 percent under Republic Act 6977 as amended by RA 8289 and RA 9501 otherwise known as the Magna Carta for SMEs.

The law mandates banks to allot eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.

The industry’s total loan book, net of exclusions, increased by 9.3 percent P9.24 trillion in end-September from P8.45 trillion a year earlier. This means that allocations for the MSME sector should have reached P924.29 billion.

The BSP data showed that Philippine banks’ disbursements to micro and small enterprises grew by 5.1 percent to P180.65 billion from P171.8 billion. The amount remained short of the mandated P739.43 billion or eight percent as it only accounted for a 1.95-percent compliance.

Likewise, funds allocated to medium enterprises also inched up by 1.9 percent to P273.66 billion from P268.54 billion, but exceeded the required P184.86 billion. This translated to a compliance ratio of 2.96 percent, higher than the mandated two percent.

MSMEs play a very important role in the economy, accounting for 99.5 percent of the total establishments and 62.8 percent of the total labor force. The sector also contributes 35.7 percent of the total value added to the Philippine economy.

However, MSMEs are unable to reach their full potential because of difficulty of credit and financial access. To address this, the BSP adopted regulatory relief measures to reduce the financial burden on MSMEs.

The BSP approved the temporary relaxation in the assigned credit risk weight for MSME lending in the computation of risk-based capital adequacy framework to 50 percent from 75 percent.

A lower credit risk weight allows banks to lend more to the MSME sector than setting aside the amount to comply with capital requirements.

The regulator also approved the inclusion of MSME loans in the banks’ compliance with reserve requirement ratios (RRR) to ensure adequate liquidity and credit in the financial system.

The BSP slashed the RRR for universal and commercial banks by 200 basis points and for mid-sized and small banks by 100 basis points. It also slashed the minimum liquidity ratio (MLR) for stand-alone mid-sized and small banks to 16 percent from 20 percent to release more funds for lending.

As part of its COVID-19 response measures, the BSP also slashed interest rates by 200 basis points in 2020, bringing the overnight reverse repurchase rate to an all-time low of two percent.

With soaring inflation and weakening peso, the central bank was prompted to deliver aggressive rate hikes to match the increases delivered by the US Federal Reserve.

The BSP raised key policy rates by 350 basis points, bringing the overnight reverse repurchase rate to a 14-year high of 5.50 percent.

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