THE CENTRAL BANK is backing proposals to amend a law setting credit quotas for the farming sector amid poor compliance, as it eyes to accommodate infrastructure financing and other alternatives in order to boost lending.
Bangko Sentral ng Pilipinas (BSP) Deputy Governor Chuchi G. Fonacier said authorities are wrapping up a study towards increased compliance with the Republic Act 10000 or the Agri-Agra Reform Credit Act, as well as other modes of credit that will boost banks’ compliance with the required lending.
Signed in 2010, the law mandates banks to allot at least 10% of total loanable funds for agrarian reform beneficiaries, and 15% for farmers and fisherfolk.
Banks only extended a total of P573.7 billion in agri-agra loans in 2017, just half the P1.034 trillion they should have lent to the sector, according to BSP data.
The Agri-Fisheries Alliance yesterday called for reforms in agricultural credit, with sector leaders asking for greater flexibility on lending to allow greater agri-financing. Among their proposals include lumping the agri-agra lending provisions into a 25% blanket requirement for lending to agriculture, which they said will provide more leeway for banks to help out the sector.
Ms. Fonacier said the central bank is in favor of such proposals, adding that there could be other forms of lending which may be deemed compliant with the provisions of the law.
“There may be investments in strategic areas like infrastructure and farm-to-market roads [which may be considered]… BSP welcomes that kind of idea as it will also help banks comply with the Agri-Agra law,” the BSP official said in a briefing yesterday at the University of Asia & the Pacific.
“That will take amendment but we’re favoring a study to have flexibility in the allocation of the entire 25% lending,” Ms. Fonacier added, noting that this would have to go through the legislative mill as the existing law is “very explicit” about the allocations.
Lenders prefer to pay penalties for non-compliance rather than lend to the so-called “risky” segment. In particular, banks only lent 1.05% of their portfolio for agrarian reform, a far cry from the 10% standard. Meanwhile, loans to farmers were higher at 12.83% but still short of the 15% requirement.
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.
For its part, the state-owned Land Bank of the Philippines (LANDBANK) noted that they are planning to issue bonds to be auctioned to other banks in order to help these lenders meet the required lending.
LANDBANK President and chief executive officer Alex V. Buenaventura said, however, that they still need to ramp up their own agriculture-related loans before they can issue “Small Farmers Corporative Bonds” for other lenders to avail of as alternative means for compliance. — Melissa Luz T. Lopez