Banks can help the economy recover from the coronavirus disease 2019 (Covid-19) pandemic by boosting efforts in extending loans to micro, small and medium enterprises (MSMEs), the Bankers Association of the Philippines (BAP) said.
BAP President Cezar P. Consing, in a recent webinar, said that loans from MSMEs only comprise a relatively small portion of the banking system but can aid a bigger part of the economy.
“The MSME loans account only about 10 percent of the banking system. And yet, MSMEs account for probably 60 or more percent of the employment in the country,” Consing said.
Providing loans to MSMEs “is something I know the banks are looking at seriously because they know with only 10 percent of the loan portfolio in the system, we could really help out up to 60 percent of the employment,” he added.
With this, the BAP chief lauded the recent move of the Bangko Sentral ng Pilipinas (BSP) to ease the financial burden on loans granted to MSMEs.
“I think the move for the part of BSP a little over a week ago to make MSME loans eligible for reserve requirements is actually very exciting,” Consing said. The BSP is set to issue guidelines on the matter.
This was also around the time the Monetary Board decided to slash BSP’s overnight reverse repurchase facility by 50 basis points to 2.75 percent, bringing overnight lending and deposit facilities to 3.25 percent and 2.25 percent, respectively.
Including MSME loans as part of banks’ compliance with reserve requirements and reducing policy rates can secure adequate liquidity in the financial system and help reduce borrowing costs, the BSP said.
“It is especially exciting that you can combine [MSME loans] with Philguarantee [Philippine Guarantee Corp.] playing a role in covering some of the risk,” Consing explained.
Philguarantee President and CEO Alberto Pascual recently announced that the state-owned lender approved an MSME credit guarantee program to provide P120-billion support in working capital loans to MSMEs currently dealing with pandemic-induced financial stress.
The credit guarantee represents 0.6 percent of the country’s gross domestic product.
“The guarantee program will also complement access to lending as it encourages more banks to provide assistance loans to MSMEs,” Pascual said in a statement.
Apart from this, Land Bank of the Philippines also announced launching a lending program aimed at supporting MSMEs, microfinance institutions and cooperatives by providing more flexible terms and conditions.
ING Bank Manila Economist Nicholas Antonio T. Mapa earlier told the BusinessMirror that the central bank and national government should aid the finances of MSMEs so the economy can recover from the pandemic.
“BSP and the national government, meanwhile, can look for emergency loan assistance to SMEs and even consumers who need to normalize cash flows after such a disruption,” he said.
Mapa added that demand for new loans might increase after the lockdown as businesses try to pick up their pace toward recovery.
MSMEs account for over 90 percent of the businesses in the country.