Comprehensive credit data to prompt more banks to lend to ‘risky’ sectors
ACCESS to comprehensive credit data could prod more banks to lend to “risky” smaller firms, the new central bank chief said, as he doubted the ability of imposing lending quotas in stirring wider financial inclusion.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said the upcoming rollout of the country’s credit information system and improving the credit information law would help local banks to correctly price the risks that come with extending loans to micro, small, and medium-scale enterprises (MSMEs), a sector with limited access to credit at present.
“The way to solve that is rather than focus on mandated lending, deal with the issues that make it easier for creditors to lend on a voluntary basis. Rather than force the issue, it is better to fix the barriers to lending,” Mr. Espenilla told reporters on Friday, adding that the “difficulty of enforcing contracts” is also viewed as a risk by the lenders.
He was referring to the 10% credit quota imposed on banks as provided by Republic Act 9677 or the Magna Carta for MSMEs, which has since been evaded by the lenders who simply choose to pay the penalties rather than lend to the sector. Under the law, banks must set aside 8% of its total loan portfolio for micro and small firms, while 2% should be allotted for medium-sized lenders.
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.
Only rural and cooperative banks have been able to meet the lending requirements as of the first quarter of 2017, with its bigger counterparts again missing the standard.
Credit extended for MSMEs totalled P494.885 billion, about 15% short of the P589.06 billion that represents a tenth of the industry’s total loanable funds as of end-March, according to BSP data.
Banks went above the 2% standard for medium-scale businesses as they loaned out an aggregate P299.74 billion or 5.09% of their portfolios. However, lending to micro and small firms stood at just 3.31% or P195.145 billion, lower than the 8% requirement.
“If you don’t know those customers, you are not geared to serve that customer… and if you comply — even though the risk is something that you may not know how to control — you may actually lose a lot because you may lose the principal,” the BSP chief added.
The Credit Information Corp. is building a centralized database of credit data from various financial entities and other non-bank players, which is eyed to go live by January 2018. These data will be used by credit scorers who are given special access to such information, which in turn will help banks in pricing risks and assessing clients’ capacity to pay more accurately.
In a separate discussion, Moody’s Investors Service vice- president and senior analyst Simon Chen said increased lending to the retail and MSME sector could lead to a bigger share of non- performing loans (NPLs), but this is unlikely to drag down stability of the Philippine banking system.
“When they ( banks) refocus their growth opportunities and slowly move away from conglomerates, that’s when we start to see overall NPL ratios could go up but this growth within SME and retail is not unhealthy to the extent that banks are still well- compensated for the additional risks they are taking for this sector,” Mr. Chen said in a media roundtable last week.
Overall, asset quality among Philippine lenders is expected remain “stable” over the next 12-18 months, after Moody’s kept its outlook for the local banking system and its “Baa2” credit rating for the country.
Bad loans held by Philippine banks sustained a downtrend in May to settle at a 1.98% share to total credit, according to central bank data.