Agri-agra credits rule top banks’ headaches

LOCAL banks voted the mandatory credits to the agri-agra sector as the most challenging in terms of regulatory compliance, a Bangko Sentral ng Pilipinas (BSP) survey showed.

In order to evaluate the impact of local banking regulations, the BSP recently asked banks to rank five areas which they find challenging in terms of regulatory compliance. The results showed that except for rural and cooperative banks, compliance with mandatory credits to agri-agra remains as the “most challenging.”

As of end-march 2020, the entire Philippine banking system logged in an 11.02 percent compliance for other agricultural credit, which is below the 15-percent statutory credit requirement under the agri-agra law. Compliance ratio for agrarian reform credit, meanwhile, stood at 0.97 percent. This is way below the required 10 percent.

The other regulations that banks cited in their top 5 include anti-money laundering requirements, credit risk management, operational risk management and information and technology risk management.

other challenging regulations that banks cited include reportorial requirements for single borrower’s limit, Basel III capital requirements and foreign-exchange regulations.

“Penalties have been collected from banks which have failed to fully comply with the mandatory agri-agra credit allocation. The BSP is working with relevant government agencies on the amendments to RA No. 10000,” the BSP said.

Under RA 10000, or the agriagra law, banks are required to set aside 25 percent of their loanable funds to the agriculture sector—10 percent for agrarian reform beneficiaries and 15 percent for other agricultural credit.

“likewise, the BSP supports the amendment of RA 10000 to strengthen rural development by providing for a holistic approach that takes into account the broader agricultural financing ecosystem and rural community development requirements,” the BSP said.

In the second half of 2020, the majority of domestic universal and commercial banks focused on corporate banking, retail banking, payments and settlement services, and cross-selling while foreign banks mainly concentrated on corporate banking, trade financing, and treasury operations.

Meanwhile, agriculture remains the top market of the rural and cooperative banks’ loan portfolio.