PHL banks lend the least to MSMES among Asean-5
MICRO, small and medium enterprises (MSMES) in the Philippines receive the least volume of bank loans compared to their counterparts in peer nations, a recent study from the Asian Development Bank (ADB) showed.
ABD’S recent study entitled Asia Small and Medium Sized Enterprise Monitor 2020 shows that Philippine banks only lent $11.6 billion to MSMES in 2019. This is the smallest MSME bank loan total in 2019 among the Association of Southeast Asian Nations (Asean)-5. The Asean-5 comprises Indonesia, Thailand, Malaysia, Philippines and Singapore.
For 2019, the Philippines’s $11.6-billion MSME bank loan pales in comparison with Thailand’s $218.2 billion, Indonesia’s $79.9 billion, Malaysia’s $68.1 billion and Singapore’s $56.85 billion (as of end-june).
Data also shows that the Philippine MSME bank lending has been consistently lagging among its peers since available data starting 2011. This is despite the passage of Republic Act 9501 in 2008, mandating banks to allocate 10 percent of their total loan portfolio to MSMES. The law expired in 2018.
“Access to finance is a chronic problem blocking MSME survival and growth [in the Philippines]. The share of MSME credit to total bank credit has been falling to a single-digit percentage share since 2013,” the ADB said in its report.
Vital role
MSMES have been playing a critical role in driving the national economy, accounting for 99.5 percent of total enterprises and 63.2 percent of the total employed labor force.
Data showed that the percentage of Philippine MSME nonperforming bank loans to the total MSME loan portfolio of banks was the highest in the region. Nonperforming loans are more popularly known as “bad” or “soured” loans as they are unpaid loans way beyond their due date.
Philippine MSMES top the list with 5.8 percent NPLS to total MSME loan portfolio, followed by Thailand’s 4.7 percent, Singapore’s 4.2 percent and Malaysia’s 3.7 percent. Indonesia has the lowest value of NPL with only 3.6 percent of its banks’ MSME loan portfolio.
Just this year, the Bangko Sentral ng Pilipinas (BSP) moved to encourage banks to lend more to the MSME sector by expanding the set of eligible instruments as compliance with the BSP’S reserve requirement to include newly granted loans to MSMES
They also issued time-bound and targeted regulatory and operational relief measures to encourage Bsp-supervised financial institutions to continue their support to the economy, particularly the MSME sector.
These measures include: extension of financial relief to borrowers, incentivized lending, promotion of continued access to financial services, support for continued financial services delivery, and support for sufficient level of domestic liquidity and economic activity.
BSP Governor Benjamin E. Diokno said for this year, as of end-august, bank loans to MSMES were at P527 billion or roughly $10.8 billion.
ADB data showed that the main business sector for MSMES in the country is services, accounting for 86.8 percent in 2018, with wholesale and retail trade (including the repair of motor vehicles and motorcycles) holding the largest share (46.3 percent and rising), followed by other services (40.5 percent)—which include accommodation and food services (14.5 percent), other personal services (6.6 percent), and financial services (4.6 percent). Manufacturing’s share was 11.7 percent and is decreasing.
Also, in 2018, by region, 20.4 percent of MSMES operate in Metro Manila with the remaining 79.6 percent spread across the country— Calabarzon with 14.8 percent of the total, Central Luzon with 11.6 percent, Central Visayas with 7.1 percent, Western Visayas with 6.2 percent, and other regions account for 39.9 percent.