UNIONBANK of the Philippines, Inc. said banks are having a hard time complying with the required lending to the farming sector given the rapid growth of their loan portfolios.
“This is the problem. The Agri-Agra Law is computed as a percentage of your loan book. Loans of banks have grown so fast that compared to the number of hectares that are available, it didn’t grow. It even declined,” UnionBank President and Chief Executive Officer Edwin R. Bautista told reporters on Monday in a mix of English and Filipino.
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.
As of end-2018, banks only extended P707.4 billion loans to the agriculture sector, just 56.97% of the P1.241 trillion they should have lent out to beneficiaries, central bank data showed. However, loans to the sector grew from the P573.69 billion booked at end-2017, also roughly half of the P1.034 trillion banks should have offered.
Given that lenders are unable to meet the regulation, banks mostly prefer to pay penalties for non-compliance rather than lend to the so-called “risky” segment.
Mr. Bautista added that the penalty imposed to banks is “not that big.”
“Still, that’s not the point. The point is why do you have a regulation that is impossible for the industry to comply with?” he said.
In an interview last year, Bangko Sentral ng Pilipinas (BSP) Head of Financial Consumer Protection Department and Inclusive Finance Advocacy Office Pia Bernadette Roman-Tayag said despite the low compliance rate to the Agri-Agra Law, this does not necessarily mean there is lack of interest from banks to invest in the agriculture sector.
“Absorptive capacity of the sector [can] be a limiting factor, where growth of the banking system’s total loanable fund significantly outpaces the sector’s growth,” she said.
The BSP has given banks alternatives to complying with the mandated agri-agra lending, such as investments in bonds issued by government-run lenders Land Bank of the Philippines and Development Bank of the Philippines, as well as investing in infrastructure and preferred shares of stock in rural financial institutions that will help grow the sector.
Despite these, Mr. Bautista said there is a “general sentiment that the law needs to be repealed.”
“They have to go to Congress to have it repealed. I think there are moves already because they saw there’s no way banks can comply.” — K.A.N. Vidal