• Inclusive growth through credit policy

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    The Philippine economy is enjoying satisfactory performance in terms of Gross Domestic Product, with an average growth rate of 6.3 percent from 2010 to 2014.

    Several credit rating agencies like Moody’s Analytics have called the country as “Asia’s Rising Star” for beating the global economic slowdown, posting the highest growth rate among the major economies of the Association of Southeast Asian Nations in 2013.
    But the boon of economic uptick is not directly felt, as poverty reduction rate of the country is the lowest among other neighboring countries.

    According to World Bank data, the country failed in extreme hunger incidence scorecard, posting only 0.68 percent reduction in poverty incidence rate from 1990 to 2014. In addition, the Asian Development Bank’s 2009 report showed that majority of the poor live in rural areas and work in the agriculture sector, mostly as farmers and fishers.

    The agriculture sector, being the source of livelihoods for thousands of rural people and providing jobs for smallholders and landless workers, needs improved access to savings facilities, credit and support for financial transactions. Thus, country’s rural banking industry obligingly extends its services in the countryside to help finance the sector and alleviate poverty.

    Bangko Sentral ng Pilipinas (BSP) data showed that rural and cooperative banks are overcompliant with 34 and 17 percent compliance versus the 15 and 10 percent required in extending Agri-Agra credit, respectively, for the first quarter of 2015.

    The industry generated a total of P55.2 billion in its total loanable fund at the end of the first quarter; total compliance for Agri-Agra credit grew by 8.3 percent to 28.3 percent for the first quarter this year from 19.9 percent in the first quarter of 2012. Based on the Rural Bankers Association of the Philippines (RBAP) data, 457 or 91 percent of the 503 member banks now offer Agri-Agra loans in the countryside.

    Micro, small and medium enterprises (MSMEs) also benefit from rural banks. Despite fear of defaults considering the borrowers’ poor credit history and insufficient income, rural banks have taken an active role in microenterprises lending. Of RBAP-member banks, 428 lend to MSMEs.

    In addition, the rural banking industry is currently working on its soured loans as level of non-performing loans (NPLs) by rural and cooperative banks slightly increased to 12.04 percent by end of March from 11.85 percent in end 2014. Rural banks set aside loan loss reserves amounting to 57.6 percent of the gross NPLs to mitigate credit risks and to align with BSP’s sound credit policy.

    A financial environment conducive to faster agricultural and countryside growth is necessary for poverty reduction and attainment of the countrywide inclusive, tangible growth. To provide such progress in the rural areas, rural banks are reaffirming their commitment to serve as financial access point to communities and expand necessary financial products.

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