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Philippines: MSME loans down 15% to P464.3 billion in end-September 2020
MANILA, Philippines — Loans extended to micro, small and medium enterprises (MSMEs) declined by 15.2 percent as of end-September last year despite regulatory relief measures extended by the Bangko Sentral ng Pilipinas (BSP) to banks to assist the sector in jumpstarting the economy amid the pandemic.
Latest data released by the central bank showed loans extended to MSMEs reached P464.35 billion as of end-September last year, P4.46 billion higher than the P547.02 billion in the same period in 2019.
The banking system’s overall compliance ratio of 5.4 percent remained below the required 10 percent mandated under Republic Act 6977 as amended by RA 8289 and RA 9501 otherwise known as the Magna Carta for SMEs.
The law mandates banks to earmark eight percent of their total loan portfolio for micro and small enterprises and two percent for medium enterprises.
The BSP data showed the banking system’s total credit allocation to micro and small enterprises went down by 18.11 percent to P179.62 billion as of end-September last year from P219.35 billion a year ago and remained short of the mandated eight percent as it only accounted for a 2.09 percent compliance.
Likewise, funds allocated to medium enterprises decreased by 13.1 percent to P284.72 billion from P327.67 billion. This translated to a compliance ratio of 3.31 percent exceeding the required two percent.
The industry’s total loan book grew by 9.8 percent to P8.61 trillion from P7.84 trillion. This means allocations for the MSME sector should have reached P860.77 billion.
MSMEs play an important role, contributing 35.7 percent of the total value added to the economy and account for 99.5 percent of the total establishments and employ 62.8 percent of the total labor force.
However, MSMEs are unable to reach their full potential because of difficulty in credit and financial access.
The BSP has been adopting regulatory relief measures to reduce the financial burden on MSMEs.
For one, the Monetary Board approved the temporary relaxation in the assigned credit risk weight for MSME lending in the computation of risk-based capital adequacy framework to 50 percent from 75 percent.
A lower credit risk weight allows banks to lend more to the MSME sector.
The regulator also approved the inclusion of MSME loans in of the banks’ compliance with reserve requirement ratios to ensure adequate liquidity and credit in the financial system.
The BSP slashed the RRR for universal and commercial banks by 200 basis points and for mid-sized and small banks by 100 basis points last year.
Likewise, the central bank also slashed the minimum liquidity ratio (MLR) for stand-alone mid-sized and small banks to 16 percent from 20 percent to release more funds for lending.
The Monetary Board also slashed interest rates by 200 basis points this year, bringing the overnight reverse repurchase rate to an all-time low of two percent.
Source: https://www.philstar.com/business/2021/02/04/2075141/msme-loans-down-15-p4643-billion-end-september-2020