BSP to penalize banks that fail to comply with agri-agra rule

MANILA, Philippines - Banks that continue to fail to comply with the 25-percent mandatory credit allocation to the agricultural sector through agrarian reform and agri-agra activities would be penalized by the Bangko Sentral ng Pilipinas (BSP) with the completion of the implementing rules and regulations (IRR) at the end of next month.

BSP Deputy Governor Nestor Espenilla Jr. said in an interview with reporters that the proposed guidelines is now being finalized by the central bank together with the Department of Agriculture (DA) and the Department of Agrarian Reform (DAR) and would be presented to various organization including the Bankers Association of the Philippines (BAP), Chamber of Thrift Banks (CTB), and the Rural Bankers Association of the Philippines (RBAP).

“We hope that we can come up and finish with the IRR probably by the end of August,” Espenilla stressed.

The BSP 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 Finan-cing System Through Banking Institutions (Agri-Agra Law).

The Agri-Agra Reform Credit Act of 2010 was signed by former President Gloria Macapagal-Arroyo last February amended Presidential Decree 717 to facilitate increased credit to farmers and spur productivity.

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’ noncompliance and under-compliance would go to the Agricultural Guarantee Fund Pool (AGFP) and the Philippine Crop Insurance Corp. (PCIC) to cover loans to farmers.

Latest data from the BSP 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 complaince ratio or 22.8 percent was 2.2 percent short of the required 25 percent under the Agri-Agra Law.

On the other hand, data also 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.

“Maybe we should not prejudge them because the starting point is current, April 30. Secondly, while certain items for compliance were removed new ones were added. I am sure with the exposure that we have presented banks will start figuring how they will face it,” Espenilla added.

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 PD 717 that requires 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 through agri-agra loans while the balance of 10 percent must be lent to beneficiaries of agrarian reform.