Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said there is a need to improve credit information in the country to encourage banks and other lending institutions to lend more to different sectors.
Espenilla said that instead of forcing banks to lend to clients, the better approach was fixing the barriers to lending.
“Mandated lending is basically you require the lender, ready or not, on a quota basis, to lend to a segment that creditor may or may not be ready to serve. So that is where the problem lies,” he said during the induction of new officers of the Credit Management Association of the Philippines in Makati City.
“So if you don’t know those customers, you are not geared to serve them. You are [now] faced with a difficult choice of not complying, then you pay the penalty,” he said.
Espenilla said even if lenders were able to comply, they would not know the risks and they might actually lose a lot.
“I think the way to solve that is, rather than focus on mandated lending, we must deal with the issues that make it easier for creditors to lend on a voluntary basis by first improving the credit information law. There are other issues in play such as the difficulty of enforcing contracts,” he said.
Espenilla said lending to the different sectors of society was very vital to sustain the growth momentum of the economy.
Under the Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009, 25 percent of banks’ total loanable funds should be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries.
However, latest data showed that banks continued to fall short of the mandated limit despite posting a double-digit growth in loans for agriculture and agrarian reform last year.
Bangko Sentral data showed that the banking system was able to set aside P488.2 billion of total loanable funds for agriculture and agrarian reform last year or 12.8 percent higher than the P432.73 billion disbursed in the same period in 2015.
The total loanable funds generated by the banking industry increased 24.3 percent to P3.53 trillion last year from P2.84 trillion in 2015. But the combined allocation of loanable funds from agriculture and agrarian reform of 13.83 percent last year was way below the minimum threshold set by the law.
Loans extended by the banks to the agriculture sector amounted to P452.19 billion, translating into a 12.81 percent compliance ratio which was below the required 15 percent.
