Banks fail to comply with required Agri-Agra lending

BIG BANKS again failed to comply with required lending to the farming sector in June, which came at a time of robust asset growth, latest central bank data showed.

Universal, commercial and thrift banks ignored the prescribed credit quota under the Agri-Agra Law as of the first semester, with total lending to the industry settling to roughly half the required amounts during the period.

Republic Act 10000 or the Agri-Agra Reform Credit Act mandates banks to allot at least 10% of its total loanable funds to agrarian reform beneficiaries and 15% for farmers and fisherfolk.

Banks only extended P629.98 billion loans to the agriculture sector as of end-June, or just 54.7% of the P1.151 trillion they should have lent out to beneficiaries during that period. However, this is 26% higher than the P500.79 billion worth of credit lines granted to the industry as of June 2017, according to latest data from the Bangko Sentral ng Pilipinas (BSP).

Based on data from previous quarters, the bigger lenders mostly prefer to pay penalties for non-compliance rather than lend to the so-called “risky” segment.

Broken down, there is dismal compliance for the 10% agra component, with approved loans just at 0.98% of the banks’ available funds of P4.605 trillion. The lenders extended P45.052 billion to agrarian reform land developers as of June, 58% higher than the P28.531 billion granted during the same period in 2017.

Big banks posted the lowest compliance rate, having set aside 0.78% of loanable funds or P33.361 billion to the sector, a far cry from the P427.094 billion they should have given. Thrift banks also missed the requirement and handed out P3.33 billion for agrarian reform, well below the P25.962 billion standard.

In contrast, rural and cooperative banks surpassed the floor rate and allotted over 11% of their available funds. This amounted to P8.361 billion, well above the P7.477 billion minimum prescribed under the law.

Banks were more upbeat towards farmers and fisherfolk, with industry compliance at 12.7% versus the 15% minimum. Lenders gave a total of P584.928 billion loans as of June, up by a fourth from the P472.255 billion granted during the same period last year although still short of the P690.799 billion standard.

Big lenders granted P548.885 billion for agriculture-related activities during the first half, against the P640.64 billion which they should have provided. This accounted for 12.85% of their loanable funds. Thrift banks were also reluctant to lend to the sector, having given only P6.84 billion against a P38.944-billion requirement.

For their part, rural and cooperative lenders surpassed the legal requirement and allotted 24.5% of loanable funds for the agri component. This is equivalent to P18.291 billion, well above the P11.215 billion minimum.

Banks are given several options to meet the required lending. Direct compliance involves extending credit lines to qualified borrowers and the purchase of eligible loans from other financial firms.

Meanwhile, alternative methods include investing in duly-declared eligible debt instruments, investing in the special deposit accounts of BSP-accredited rural lenders, wholesale lending to rural banks, granting rediscount loans to other banks covering farm loan credits, and the extension of loans for public infrastructure for the benefit of the farming sector.

BSP Deputy Governor Chuchi G. Fonacier previously said the Agri-Agra law may be amended to include other forms of credit as compliant borrowings, such as financing for farm-to-market roads and related infrastructure.