Banks find mandatory loan for agri-agra too high

MANILA, Philippines - The banking community is up in arms over the mandatory credit allocation to the agricultural sector through agrarian reform and agri-agra activities citing the 25 percent level is “too high” for the banks.

Bankers Association of the Philippines President Aurelio Montinola III said in an interview with reporters on the sidelines of the launching of the Banking Laws of the Philippines Book 1 the New Central Bank Act Annotated that banks would have a hard time complying with the 25 percent mandatory credit allocation to the agricultural sector to be implemented by the Bangko Sentral ng Pilipinas (BSP).

“Twenty-five percent is high. It is not easy to lend that much,” he stressed.

Montinola, who is president of the Bank of the Philippine Islands (BPI), said banks have no recourse but to comply with the provisions of Republic Act 10000 or An Act Providing for an Agriculture and Agrarian Reform Credit and Financing System Through Banking Institutions (Agri-Agra Law).

“Its a law so we have to follow it,” he stressed.

He pointed out that foreign banks are also expected to have difficulty in complying with the provisions of the law.

“For foreign banks, it will make them go to an area that they are not familiar with,” Montinola said.

However, he said major players in the industry would have to seek amendments to the law after three years.

Earlier, 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 Agri-Agra Reform Credit Act of 2010 was signed by President 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.