RP banks oppose mandatory provision in Agri-Agra Law

MANILA, Philippines - The country’s banking sector is urging Congress to reconsider proposed amendments to Presidential Decree 717 or the Agri-Agra Law on mandatory lending.

The Bankers Association of the Philippines (BAP) and the Chamber of Thrift Banks (CTB), which group the country’s commercial and thrift banking systems, respectively, said mandatory lending exposes the banks to risks that has a default rate of 20 percent.

The groups argued that mandatory lending under the proposed amendments will, in fact, putting depositors’ money more at risk.

“This is not the money of the banks but that of the depositing public. And banks have the fiduciary and the moral duty to protect the public’s money,” BAP executive director Leonilo Coronel told The STAR.

The BAP stressed the country’s financial system and the Philippine economy have weathered the recent global credit crisis due to the prudent measures instituted by the Bangko Sentral ng Pilipinas (BSP) and the financial institutions’ internal due diligence. 

“The existing alternative compliance as provided for by law and its implementing rules and regulations be maintained and further expanded to include other mechanisms such as wholesale lending and loans directed to local government units (LGUs) and private institutions which can undertake investments in storage and cooling facilities, among others, that will ultimately benefit the farmer beneficiaries, while a stable and robust financial system is maintained,” the banking organizations said.

The bankers argued that the proposed law should improve the environment for lending to the countryside, and not stifle credit especially to other sectors in need of funding.

CTB president Pascual M. Garcia III said mandatory lending would force banks to allocate more funds to comply with the amendments to PD 717, and will lessen allocations to schools and hospitals.

“Mandatory credit allocation programs tend to misallocate resources, and that mandatory credit programs are an efficient way of allocating credit. The principle of a mandated lending scheme connotes a fundamental weakness in the sector being subsidized,” Garcia explained.

Bankers also proposed that a thorough study be conducted on other issues including the penalty structure and other modes of compliance.

“In addition, it is important that we establish a concrete basis of the agricultural and agrarian reform sector’s actual and expressed demand for loans vis-à-vis the available loanable funds directed to this sector,” the groups said.

Both organizations pointed out that government and other private groups should focus on transforming the agriculture sector into an efficient and competitive sector, which means providing the needed infrastructure to hasten delivery of agricultural products at a lower cost, with less wastage.

“This should rightfully be assumed by Government and merely supported by the private sector,” Garcia added.

Banks said government should retain all types of alternative compliance modes, government securities and bonds, including special deposit accounts (SDAs) placed with the Land Bank of the Philippines (LBP) and the Development Bank of the Philippines (DBP) as another form of compliance.

PD 717 instructs banks to allocate 25 percent of their lending portfolio for agricultural credit. However, banks are also allowed to invest in certain government securities as an alternative compliance.