By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has approved other alternatives for banks to comply with the provisions of the Agri-Agra Reform Credit Act of 2009 (Republic Act 10000) including the investments in bonds issued by government banks for lending to the agriculture and agrarian reform sector.
Under the law, banks are mandated to set aside 25 percent of their loan portfolios for agriculture and fisheries. Ten percent of this portion are specifically for agrarian reform-related loans and the other 15 percent for farming-related endeavors.
BSP Governor Nestor A. Espenilla Jr., who signed Circular No. 1009 (Amendments to the Rules and Regulations on the Mandatory Credit Allocation for Agriculture and Agrarian Reform Credit) last July 18, said the BSP will allow compliance for the 25 percent mandatory credit allocation for eligible securities as declared by the Department of Agriculture (DA) and if banks purchased these after April 2010.
These bonds should be issued by the Development Bank of the Philippines and Land Bank of the Philippines and proceeds were intended for on-lending to the agriculture and agrarian reform sector.
lnvestments in other debt securities that have been declared as eligible by the DA, or by an agency duly-authorized by the DA are also accepted. Paid subscription of shares of stock in accredited rural financial institutions (RFIs) and the Philippine Crop Insurance Corporation (PCIC) are also considered compliance.
“For purposes of implementing the provisions of (the law), the DA, or its duly-authorized agency, shall furnish the BSP with information on the debt securities eligible as alternative compliance with the mandatory agri-agra credit,” said Espenilla in the circular memo.
The central bank listed as alternative compliance the following loans and other credit granted after April 2010:
Investments in special deposit accounts of BSP-accredited rural Fls, the proceeds of which shall be used exclusively for on-lending to the agriculture and agrarian reform sector; wholesale lending granted to accredited rural Fls for the exclusive purpose of on-lending to the agriculture and agrarian reform sector; rediscounting facility granted by big banks to other banks covering eligible agricultural and agrarian reform credits, including loans covered by guarantees of the PCIC; and actual extension of loans intended for the construction and upgrading of infrastructure, including, but not limited to, farm-to-market roads, as well as the provision of post harvest facilities and other public infrastructure for the benefit of the agriculture and agrarian reform sector.
In the memo, Espenilla said the same alternative compliance and description will be allowed for banks allotting 10 percent of loanable amount – part of the 25 percent – in the same eligible securities and bonds issued by both DBP and Landbank.
As of end-March this year, the BSP has accredited nine rural FIs while the Agricultural Credit Policy Council accredited 21 cooperatives as RFIs.
The BSP accreditation is however not an “endorsement of the soundness” of the rural banks. Based on existing regulations, the lending or investing bank is required to disclose its agri-agra report to ensure that the said rural FI is lending or investing to utilize its exposure for agri-agra compliance.
The last major revisions to banks’ alternative compliance to the Agri-Agra law was in 2011 when the BSP listed the investments in housing and education/medical bonds and micro-businesses even if these are not agri-agra related, as allowable compliance.
Banks have notoriously poor compliance with the 25 percent credit requirement under the Agri-Agra law.
In 2017, based on BSP data, all banks loaned only P573.69 billion to the agri-agra sector, of which P266.74 billion are direct compliance and P294 billion are alternative compliance. Banks only complied 12.83 percent with the required 15 percent lending to the agriculture sector, and a mere 1.05 percent for the agrarian-related sector last year.