COMPLIANCE by the local banking system with the agri-agra mandated lending law is not showing any signs of improvement amid the pandemic, a senior official at the Bangko Sentral ng Pilipinas (BSP) said.
In a media lecture series on Thursday, BSP Monetary Board Member Bruce Tolentino said bank lending to the agricultural sector is not growing even in recent years. This, amid calls of increased lending to the sector.
Tolentino, however, blamed the law behind the low compliance rate of banks with the mandate.
“There has been no improvement in compliance. Why? Because the law is difficult to comply with,” the monetary board member said.
The BSP has long been pushing for amendments to the 12-year-old law. In March this year, the Central Bank decided to make “interim” amendments to the current implementing rules and regulations (IRR) of the law to boost lending to the sector, as legislation to amend the mandated law on agriculture is still pending.
Part of the problem, Tolentino explained, is that the law only focuses on the production side of agriculture. For the law to be effective, compliance must also cover credit to the entire agri-business production chain, including distribution and manufacturing, he said.
The law mandates that banks set aside a total of 25 percent for agriculture and agrarian reform lending, but those sectors do not cover 25 percent of the economy. This makes it hard for banks to prioritize lending to these sectors, Tolentino added.
BSP survey
A BSP survey earlier this year revealed that local banks picked the mandatory credits to the Agri-Agra sector as the most challenging in terms of regulatory compliance.
In order to evaluate the impact of local banking regulations, the BSP recently asked banks to rank five areas which they find challenging in terms of regulatory compliance. The results showed that except for rural and cooperative banks, compliance with mandatory credits to Agri-Agra remains the “most challenging.”
The other regulations that banks listed in their top five are anti-money laundering requirements, credit risk management, operational risk management and information and technology risk management.