LOANS made available by banks to the agriculture and agrarian reform sector rose by 8.9 percent at end-September 2016, but fell short of the threshold mandated under the law—reflecting lenders’ uncertainty in the sector.
Bangko Sentral ng Pilipinas (BSP) data showed that the banking system set aside P435.76 billion in funds for agriculture and agrarian reform in January to September last year, P35.62 billion higher than the P400.13 billion allocated in the same period in 2015.
Land Bank of the Philippines market economist Guian Angelo Dumalagan said the 8.9 percent rise in January to September 2016 was expected as loans in general have been increasing because of the country’s low-interest-rate environment.
“However, in relative terms, the increase in loans to this mandated sector is minimal compared with the 21.5-percent jump in total loanable funds,” he said.
Total loanable funds of the banking industry rose by 21.5 percent to P3.131 trillion as of end-September 2016, from P2.57 trillion in the previous year.
The combined allocation for agriculture and agrarian reform of 13.92 percent of total loanable funds during the period was way below the 25 percent threshold set by law.
“This implies a decreasing percentage share of agriculture and agrarian reform credit,” Dumalagan said.
Dumalagan said the low loan allocation to the agriculture and agrarian reform sector was also not surprising as it is less profitable compared with other market segments. The risks involved are high and the number of qualified borrowers is low, he explained.
“For this reason, some banks might opt to pay penalties rather than comply with the BSP requirement, as doing so might be more profitable than the alternative. Moreover, some banks may have difficulty complying with the BSP requirement because of their business model and location,” he said.