BAP, SBGFC to package loan program for SMEs

The Bankers Association of the Philippines (BAP) is set to sign an agreement with the Small Business Guarantee Fund Corp. (SBGFC) that will make it easier for small-and-medium scale enterprises (SMEs) to gain access to commercial bank loans.

The BAP’s move is in response to recent complaints the country’s 44 commercial banks’ interest charges, especially for SMEs, are at exorbitant rates, thus, effectively cutting them off from much-needed funds to sutain and expand their operations.

Bangko Sentral ng Pilipinas (BSP) Governor Rafael Buenaventura said SMEs hardly ever get a crack at competitive credit because of the limitations of commercial banks.

Buenaventura said banks are reluctant to lend to SMEs because current banking regulations dictate that banks automatically set aside funds for these types of high-risk loans.

"Because loans to SMEs are traded as "loans specially mentioned," banks have to set aside a buffer equal to 2.5 percent of the credit extended.

The buffer fund is on top of the regular provisioning the central bank imposed years back to shield the system from any quick deterioration of asset quality.

Thus, banks’ management and shareholders do not particularly encourage lending to SMEs because the buffer funds are taken out of their income and will have an impact on their overall profitability.

Buenaventura said however, that the BAP and the SBGFC are discussing alternatives, including guarantees that will enable the banks to declassify SME loans as "loans specially mentioned."