Banks to ramp up lending to agri sector

Banks are looking to increase lending to the agriculture sector this year amid better economic conditions, higher demand for agricultural loans and consolidation of government programs that would boost banks’ agricultural loan portfolio.

The results of the survey jointly conducted by the Bangko Sentral ng Pilipinas (BSP) and the Department of Agriculture showed that 72 percent of respondent banks were planning to raise their loan volumes to the agri sector.

“The proportion of those expecting to increase agricultural loan volume vary by type of banks with rural and commercial banks (around 76 percent) being the most bullish with government banks following closely at around 73 percent,” the BSP said in the 2022 Countryside Bank Survey baseline report.

The proportion of banking units who saw growth in agricultural lending this year stood at 74 percent in 2024 for thrift banks, while universal and commercial banks were at around 38 percent.

“There is scope to consider that universal and commercial banks may be implementing a form of division of labor with agricultural lending being assigned to affiliated thrift bank and rural bank subsidiaries,” the BSP said.

Excluding digital banks, 42.6 percent of Philippine banks are looking to increase their agri loan volumes by up to 10 percent in 2024 while 15.3 percent of lenders plan to raise agri lending by 11 to 20 percent.

Around 7.5 percent of banks said they would ramp up agricultural loan volumes by more than 20 percent this year. Broken down, 13.6 percent were rural and commercial banks, followed by thrift banks (11.3 percent), government banks ( 4.1 percent) and big banks (1.2 percent).

Meanwhile, 23 percent of respondent banks said there would be no change in lending stance and one percent replied that they would lower loan volume to the agricultural sector.

According to the survey, banks want to target new borrower segments by expanding their agricultural loan volume this year.

Other factors that are encouraging banks to increase lending to the agriculture sector include improving economic conditions favorable to agricultural financing and higher demand for agricultural loans, the BSP said.

According to respondent banks, there is a need for more integration of government programs that could help optimize lenders’ agricultural loan portfolio this year.

But in order for banks to increase lending to the agriculture sector, respondents said there are necessary activities, programs, products or services that are crucial in expanding agricultural loans.

Banks also specified improvements in their current offerings. This includes increasing credit lines for borrowers with no collateral but with good track record, removing collateral requirement, lowering interest rate and aligning loan maturity with project life.

Lenders could also offer incentives for good loan repayment performance, streamline loan processes with the use of technology, educate borrowers and improve the skills of bank staff on agricultural lending.

“All in all, banks are refining their approach in lending to the agricultural sector in order to cater to more agricultural borrowers and further expand their agricultural loan portfolio,” the BSP said.

Data showed that the share of agriculture loans and services granted by the banking sector went up to 18.1 percent in 2022 from 17.6 percent in 2021.

Likewise, the total value of agriculture loans surged by 36.7 percent to P213.1 billion from P155.9 billion.