MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) is looking at the possibility of slashing the mandatory credit allocation to the agriculture sector by as much as 10 percent.
BSP Governor Amando M. Tetangco Jr. said the central bank is proposing the removal of the allocation of 10 percent of the banks’ available funds for lending to agrarian reform beneficiaries as stated under Presidential Decree 717.
The decree entitled Providing an Agrarian Reform Credit and Financing System for Agrarian Reform Beneficiaries through Banking Institutions of the Agri-Agra Law has laid the basic social policy by requiring the banking sector to allocate at least 25 percent of its loanable funds for agricultural credit.
Of the figure, about 15 percent must be lent to agriculture stakeholders while the balance of 10 percent must be lent to beneficiaries of agrarian reform.
He pointed out that the central bank is not in favor of mandatory credit allocation but it recognizes the importance of the agriculture sector in the development of the domestic economy.
“There has been over compliance with the amount of credit to agriculture but problems with credit to agrarian reform beneficiaries. We can take that out. Perhaps we can take out the sub-ceiling of 10 percent,” Tetangco stressed.
The BSP has been supporting calls for the relaxation or even a repeal of a law requiring banks to automatically set aside 25 percent of their loanable funds for the agriculture sector.
This after some banks complained that they were having difficulty complying with the 25-percent threshold lending for the agriculture sector as stated under the law because there was not much demand for loans from the agriculture sector.
Banks that could not meet the threshold could opt for alternative compliance.
These include lending to education, healthcare, housing and other social services sectors as forms of alternative compliance to the agri-agra law.
But while members of the banking sector are calling for the scrapping of the law, a bill has been filed in Congress tightening its provisions.
The bill, prepared by the Senate committee on agriculture and food, has already passed both houses of Congress. It is now with the bicameral conference committee.
The Chamber of Thrift Banks (CTB) said the proposed amendments to the agri-agra law would be unfair to banks.