Banks pay P6 B penalties for failure to meet agri-agra thresholds

MANILA, Philippines — Banks have paid about P6 billion in penalties over the last two years for falling short of the mandated lending thresholds for agriculture and agrarian reform, a member of the central bank’s Monetary Board said.

Monetary Board member Bruce Tolentino said penalties collected by the BSP from banks that fail to reach the 15 percent agriculture and 10 percent agrarian reform to beneficiaries under Republic Act 10000 or the Agri-Agra Reform Credit Act of 2009 has reached P6 billion over the last two years. 

“Many of the banks prefer to pay the penalty rather than actually lend to farmers because farmers are poor credit risks, so they pay. I think over the last two years it has been something like P6 billion in penalties alone,” he said. 

Tolentino said the bulk or 45 percent of the total collections go to the Philippine Crop Insurance Corp. (PCIC) to sustain its operations, while another 45 percent beef up the agriculture guarantee fund pool managed by the state-run Land Bank of the Philippines.

According to Tolentino, 10 percent is left with the BSP to cover administrative costs. 

“The Agri-Agra Law essentially acts like a tax on the banks, a tax on lending structure. But it will not be finished I doubt if there is any legislation that will take away the Agri-Agra Law even though it has been proven that it doesn’t work,” Tolentino said. 

RA 10000 retained the mandatory credit allocation in Presidential Decree 717 where 25 percent of banks’ total loanable funds are to be set aside for agriculture and fisheries in general, of which at least 10 percent should be made available for agrarian reform beneficiaries.  

Data from the Agricultural Policy Credit Council (ACPC) showed the credit gap in the agriculture sector stood at P367 billion as of end 2016 as the percentage of loans for agriculture along with fisheries and forestry was at a paltry 2.9 percent of total loans, significantly lower compared to the respective shares of consumer and real estate loans at 17.5 percent and 19.9 percent. 

BSP Deputy Governor Chuchi Fonacier earlier urged banks to open the gates for agricultural financing as the ‘severely limited’ access to finance remains one of the major hindrances to the flourishing of the sector.

Fonacier said the regulator continues to promote agricultural financing through the improvement of cost efficiency in the delivery of financial services and leverage on digital technology, strengthening the financing infrastructure through legislation, and the promotion of innovative financing models.

Agriculture accounts for nine percent of gross domestic product (GDP). It still accounts for 27 percent of total employment in the country with approximately 11 million Filipinos engaged in agricultural labor.

Fonacier said banks remain unable and averse to catering to the credit needs of the agriculture sector despite the Agri-Agra law.

 “I am sure that you are all aware that the issue at hand is not the lack of loanable funds, so much as the need for banks to manage risks properly; and understand the sector’s actual, inner workings and why innovative models like agriculture value chain financing are capable of providing the opportunities for banks to delve effectively and successfully into agricultural financing,” she said.