BSP backs amendment to help banks comply with Agri-Agra Law

THE Bangko Sentral ng Pilipinas (BSP) said it is looking forward to passing an amendment to the Agri-Agra Reform Credit Act this year which would expand the projects that banks can fund to comply with their agricultural lending obligations.

“Ginagawa pa ng House ngayon. Kasi ibro-broaden lang namin ’yung eligible projects sa agri agra. (The House is working on it. It will broaden the eligible projects under Agri Agra.) We will consolidate it. Kasi ngayon 10% sa agrarian reform, 15% sa agriculture (under current rules, banks are required to lend 10% of their portfolio to agrarian reform projects, and 15% to agriculture). We will broaden the projects,” BSP Governor Benjamin E. Diokno told BusinessWorld in a chance interview in Makati.

“For example, you are funding a solar power project for agriculture, pwede na iyon (it might qualify)… (or) if you issue a bond to support a particular agricultural region,” Mr. Diokno said.

Asked for a timeline to pass the law, Mr. Diokno said, “Before the end of December. I’m optimistic.”

Mr. Diokno said at a forum in Makati that banks are having difficulty in complying with the law and would rather pay the penalty than lend to farmers.

“The banks are complaining that the Agri Agra (rules) are too onerous to comply. Other banks would rather pay the penalty than lend,” Mr. Diokno said.

Republic Act 10000 or the Agri-Agra Reform Credit Act requires banks to allot at least 10% of its total lending portfolio to agrarian reform beneficiaries and 15% to farmers and fisherfolk.

As of end-2018, banks have only extended P707.4 billion worth of loans to the agriculture sector, or 56.97% of the P1.241 trillion they should have lent out to beneficiaries, according to central bank data. At the end of 2017. such loans totaled P573.69 billion, or roughly half of the total of P1.034 trillion if all banks were fully compliant.

“We are filing a bill, we call it Agriculture Modernization Financing, no longer Agri-Agra. We will combine the two — 10% plus 15%, total 25%. Combine the two and then we will broaden the kind of projects that will be compliant. We’re very sensitive to this. I keep saying this: Agriculture is the weakest link. We need a new Agriculture Secretary. Agriculture in Erap’s term used to grow by 6.5%. Now it is only growing at 0.5%. We really need to focus on agriculture,” Mr. Diokno said.

Banks said the law should be revised to be more realistic.

“We support agriculture but the [Agri-Agra] law has to be more realistic in terms of compliance, in terms of lending by banks to the agri sector,” Suzanne I. Felix, executive director of Chamber of Thrift Banks (CTB) told BusinessWorld.

“Well, we support what the governor said, including agri-agra. It’s something that the banking industry is studying.”

Ms. Felix also said that the banking industry will be studying the bill Mr. Diokno hopes to file.

“We’d like to form a common position perhaps within the banking industry with regard to Agri-Agra,” she said.

The CTB released a position paper to Congress in 2017 proposing certain amendments to the law.

The position paper stated that “lending to the agra sector is difficult” and that “forcing banks to lend to a market that is not ready will just create another Financial Crisis because it will create a bubble of bad loans which the Philippines cannot afford.”

In an e-mail, Ms. Felix said, “Given the share of agriculture in GDP (gross domestic product), there is no absorptive capacity for the sector and allocation will just result in excess supply, therefore enhancing the non-compliance of the mandated amount.”

President Rodrigo R. Duterte, in his State of the Nation Address (SONA), threatened to shut down Land Bank of the Philippines (LANDBANK) for not providing sufficient credit assistance to farmers.

“I’m asking now Congress, if there is no viable plan for (lending to) farmers and (all the loans are) commercial transactions, might as well abolish (LANDBANK) and give the money to the congressmen for their development funds,” Mr. Duterte said.

Meanwhile, Finance Secretary Carlos G. Dominguez III said that LANDBANK is doing its part to finance projects for the agriculture sector.

“I’m in regular contact with the executives of LANDBANK and have been assured that they are making every effort to finance projects in the agriculture sector. The size of the resources of the Bank as the main depository accounts makes it necessary for them to deploy their funds to commercial and industrial projects as agriculture projects,” Mr. Dominguez told reporters in a Viber message.

“They are also working closely with the Department of Agrarian Reform to hasten the distribution of individual land titles to the beneficiaries as a means of improving their bankability. For your information, LANDBANK also performs critical functions such as distributing funds to Pantawid Pamilya and Pantawid Pasada beneficiaries,” Mr. Dominguez added. — Reicelene Joy N. Ignacio