PH banks fail to meet MSME loan mandate anew

Bangko Sentral ng Pilipinas. (File photo from the Philippine Daily Inquirer)

Rural and cooperative banks continue to lead in providing loans to micro, small, and medium enterprises (MSMEs), as the Philippine banking industry once again fell short of its lending quota for this key sector.

According to the latest data from the Bangko Sentral ng Pilipinas (BSP), total loans to MSMEs reached P488.13 billion by the end of June, a 5.8 percent increase from the previous year.

However, that amount of credit only accounted for 4.52 percent of the P10.8-trillion loan portfolio of the banking industry as of June, falling short of the 10-percent mandated lending for MSMEs.

Under the law, banks must set aside 10 percent of their total loan book as credit that can be extended to MSMEs. Of this mandated ratio, banks must allocate 8 percent of their lending portfolio for micro and small businesses, while 2 percent must be extended to medium-sized enterprises.

But many banks have not been compliant and just opted to pay the penalties instead of assuming the risks that typically come with lending to MSMEs.

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Dissecting the figures from the BSP, rural and cooperative banks exceeded the mandated lending quota for MSMEs while also being the sole sector compliant to the rules. These banks lent out P57.9 billion to MSMEs in the second quarter, accounting for 26.87 percent of their P215.1-billion loan book.

That amount of credit for MSMEs outperformed big banks, whose loans to the key sector amounted to P370.8 billion last quarter, or just 3.73 percent of their P9.9-trillion lending portfolio.

More loans needed

To meet the 10-percent mandated loans for MSMEs last quarter, the local banking industry should have earmarked, at the very least, P864.3 billion as credit for micro and small businesses, and P216.1 billion for medium-sized firms.

This means total lending for MSMEs should have reached a minimum of P1.08 trillion in the three months through June.

But BSP data showed overall lending to micro and small firms only amounted to P196.8 billion in the second quarter, or just 1.82 percent of the sector’s total loan book.

Meanwhile, loans to medium enterprises only cornered 2.70 percent of banks’ entire lending portfolio to P291.3 billion.

As it is, the latest data increased the urgency to extend more financing to MSMEs, which are considered the backbone of the economy. This is because such enterprises make up about 99 percent of business establishments in the Philippines and provide around 63 percent of employment in the country.

The crucial sector also contributes about 40 percent to the country’s gross domestic product.