Banks fail to comply with 25% mandatory credit to agri-agra

MANILA, Philippines - The Bangko Sentral ng Pilipinas (BSP) reported over the weekend that banks failed to comply with the 25-percent mandatory credit allocation to the agricultural sector through agrarian reform and agri-agra activities last year.

Data showed that a total of 672 banks allocated P569.5 billion or 22.8 percent of their total loanable funds to agri-agra loans falling short of the 25 percent mandatory requirement under Presidential Decree 717 or the decree entitled Providing an Agrarian Reform Credit and Financing System for Agrarian Reform Beneficiaries through Banking Institutions or the Agri-Agra Law.

The BSP said the compliance ratio or 22.8 percent was 2.2 percent short of the required 25 percent under the Agri-Agra law.

The central bank believes that the compliance of banks to the provisions of the law would improve with the imposition of stern penalties under Republic Act 10000 or An Act Providing for an Agriculture and Agrarian Reform Credit and Financing System Through Banking Institutions (Agri-Agra Reform Credit Act of 2010).

The law was signed by President Arroyo last February amending Presidential Decree 717 to facilitate increased credit to farmers and spur productivity.

“The enactment of the Agri-Agra Law is seen to improve the banks’ compliance with the agri-agra credit in the future given the stern penalty provision of the law,” the BSP said.

RA 10000 provides stiffer penalties for banks that fail to lend to the agriculture sector. The law imposes a penalty equivalent to one percent of the amount that the banks failed to comply with.

A portion of the penalties on banks’ non-compliance and under-compliance would go to the Agricultural Guarantee Fund Pool (AGFP) and the Philippine Crop Insurance Corp. (PCIC) to cover loans to farmers.

On the other hand, data revealed that banks also failed to comply with the mandatory credit allocation to agrarian reform loans last year.

The BSP reported that banks only allocated P227.1 billion or 9.1 percent of their total loanable funds for agrarian reform credit falling short by 0.9 percentage point of the required 10 percent under the law.

Earlier, 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.