Agri-Agra Law widens bad loans – UAP

Compliance with the Agri-Agra Law is widening the banking sector’s bad loans, which has breached the worrying levels of 18 to 18.5 percent in the last 10 months.

This was the assessment of the University of Asia and the Pacific’s (UAP) Center for Business and Agriculture (CBA) on how the local banking industry adhered to the Bangko Sentral ng Pilipinas’ (BSP) ruling to allocate at least 25 percent of their loanable funds for the agriculture sector.

Dr. Rolando Dy, the center’s executive director, said banks particularly the commercial ones, are not geared toward agriculture lending and thus yields higher transaction costs.

"The Agri-Agra Law compliance just tends to increase a bank’s bad loans especially if it concerns the agrarian reform aspect of the law," Dy was quoted to have said.

Monetary authorities should consider lowering the banking industry’s 25 percent mandatory requirement for agri-agra, he suggested. Instead of opening new credit lines for the agriculture-related industries and small firms, banks have opted to buy agri bonds to comply with the law.

The prestigious Bankers Association of the Philippines’ (BAP) admitted that bank lending to the agriculture sector had been sparse due to the lack of agriculture-support facilities.

"Credit will always seek business opportunities. However, the perceived development on the country’s agriculture sector is still not completed. The support infrastructure such as post-harvest facilities and other marketing structures are still lacking so there is no guarantee that there would be a return on investments made," the BAP chief economist Johnny Noe Ravalo was quoted to have said.

Ravalo added that this should be assessed in the broader contest of rural development, which could impact on the agriculture sector.

As of September 2000, the Philippine banking sector’s total loanable funds amount to P890-billion, of which 25 percent of P222.4 billion should be allocated for agriculture and agrarian reform projects. Banks’ total compliance actually reached P260 billion or 29 percent. – TPTorres