Thrift banks seek MSME, farming laws amendment

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The Chamber of Thrift Banks (CTB) is calling for the amendment of the laws on micro, small and medium enterprise (MSME) and agri-agra to bolster the performance of thrift banks in the sectors.

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In a statement, Jose Teodoro Limcaoco, CTB president, said the chamber is seeking to ease credit allocation under the MSME law or the Magna Carta for Micro, Small and Medium Entrepreneurs (Republic Act No. 9501).

“We still have member-banks who find it difficult to comply with the required credit allocation simply because the MSME is not their niche market,” Limcaoco said.

The MSME Law aims to strengthen financial support to small businesses by addressing the problem of lack of capital and access to credit. It requires banks and lending institutions to allocate at least 8 percent of their loan portfolio to micro and small enterprises, and at least 2 percent for medium enterprises.

The CTB president suggested that rather than imposing penalties, the government should provide a window for other alternative compliance, so that under-complied banks will not be heavily burdened by penalties which small banks may not be in a position to handle given their limited capital or resources.

Furthermore, the CTB urges a similar stand on the mandatory credit requirement under the Agri-Agra law or Agri-Agra Reform Credit Act (RA 10000).

“In helping the agri-agra sector, banks could suffer in the form of higher non-performing loan ratios. Credit losses are naturally recovered by charging higher rates,” Limcaoco revealed.

The law mandates banks to set aside 25 percent of their total loanable funds for credit to agriculture and fisheries in general, of which at least 10 percent should be made available to agrarian reform beneficiaries.

The CTB said the government should focus on making the agriculture sector more efficient and competitive, by helping farmers reduce production costs and wastage.

“The agri sector may not be fully prepared to accept and pay back the magnitude of funds earmarked for the sector under the law, since there are a number of infrastructure issues that should be addressed first such as lack of storage, lack of farm-to-market roads, among others,” Limcaoco said.

Meanwhile, the CTB said that its call for the law’s amendment is part of the local thrift banks’ preparations for the Association of Southeast Asian Nations (Asean) integration in 2015.

“We have to understand how Asean integration affects our customers, what this would mean to them. We also need to work hand-in-hand with the government. We need their support in amending laws affecting mandatory credit requirements,” Limcaoco said.

The Bangko Sentral ng Pilipinas (BSP) said that thrift banks in the Philippines must prepare for the Asean Economic Community in 2015.

Opportunities from AEC
In his speech at the Chamber of Thrift Banks: 2014 National Convention held in Makati City on Wednesday, BSP Governor Amando Tetangco Jr. said that with a base of 600 million individuals, Asean integration opens up a bigger regional market for thrift banks.

Included in the principle of the integration of the Asean Economic Community in 2015 is the Asean Banking Integration Framework, which will qualify Asean qualified banks (QAB). These banks can operate within Asean jurisdictions on equal terms as domestic banks of that jurisdiction, subject to certain prudential and governance standards.

The BSP governor explained that while the country’s population is very young—with 35 percent of population under 15 years old as of 2012—the Philippines is a future market for banks in terms of consumer needs.

He added that the prospects for thrift banks in the country appear to be very strong, but the attractiveness of the prospect is also catching the attention of bigger banks and most banks in the Southeast Asian region.

“As we will be exposed to the opportunities of the bigger regional market, our economic prospects will also be targeted by interested regional entities. In both cases, they create competitive pressures on thrift banks and this present a main strategic issue for thrift banks,” Tetangco said.

He said that the Philippine banking system as a whole is relatively small compared to the rest of Asean, that is why there is a real need for the thrift banking industry to scale up, expand, and increase the size of its institutions for it to benefit from the heightened competition coming out of the Asean financial integration.

“Thrift banks have to gear up, the competition can come from other banks including commercial banks because of the development of the economy, and areas that used to be served by small banks are now also being served by the bigger banks,” he said.

However, the BSP governor said that overall, the Asean integration will bring positive benefits, because it is also going to open up opportunities in new markets that can also be a bigger source of funds, like deposits.

“This is expected to also lead to greater efficiency because through the use of modern technology as well as use of new things through innovation,” he said.

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