Small banks now lending more to SMEs thanks to BSP’s reserve cuts

MANILA, Philippines — The country’s rural and cooperative banks remain stable and are in a strong position to support the financing needs of micro, small, and medium enterprises as well as large firms in rural communities affected by the COVID-19 pandemic, according to the central bank.

In a press briefing, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin Diokno said preliminary data indicated that these financial institutions showed an increase in new or refinanced loans to small entrepreneurs and critically impacted large enterprises as compliance with the recent cut in the sector’s statutory reserve requirements.

“With the industry’s strong geographical presence, rural and cooperative banks are expected to continue fostering financial inclusion as well as countryside development,” he said.

At the end of the July 23, 2020 reserve week, the central bank said that 66 rural and cooperative banks lent P1.5 billion to small and medium firms compared to P1 billion by only 39 from the same sector at the end of April.

Also, 10 rural and cooperative banks used new loans to fund critically impacted large enterprises worth P100 million as compliance with their reserve requirements.

“These highlight their role in rebuilding local economies by providing needed financial services,” Diokno said.

The results of a BSP baseline survey — conducted to assess the overall performance of the financial sector during the coronavirus pandemic — also revealed that rural and cooperative banks were able to adopt their operations to community quarantine restrictions and eventually able to return to normal operations. In addition, they used technology to continue serving their client base amid social distancing measures and movement restrictions.

Latest data showed that these small lenders continued to show positive balance sheet performance. At end-March 2020, the combined resources of rural and cooperative banks rose by 5.9 percent to P265.7 billion. Resources were mostly directed to banks’ lending business that were mainly fueled by deposits, which increased by 6.1 percent to P188.2 billion.

Rural and cooperative banks’ loan quality also improved as their non-performing loans ratio decreased to 11.2 percent at end-March 2020 from 11.6 percent a year earlier.

At the end of 2019, the sector’s capital adequacy ratio also stood at 19.5 percent, which is well above regulatory thresholds.

“The BSP’s comprehensive prudential reforms support the resilience of supervised institutions, including rural and cooperative banks, in managing rising risks from the economic slowdown brought about by the COVID-19 pandemic,” Diokno said.

All told, rural and cooperative banks account for 1.4 percent of the total resources of the Philippine banking system amounting to P18.7 trillion as of end-May 2020. Universal and commercial banks held the bulk of the assets with 92.7 percent share, while thrift banks had a 5.9-percent share.

JPV