Banks’ MSME lending still below required credit

Philippine Tribune
Philippine Tribune

Banks’ lending to micro, small and medium enterprises (MSMEs) amounted to P461.387 billion as of end-June this year, up 34.88 percent year-on-year from P342.056 billion but still below the mandatory allocation of credit resources to micro and small firms under its Magna Carta law or Republic Act No. 9501.

The Magna Carta for MSMEs mandates all banks to set aside at least eight percent of their total loan portfolio for micro and small enterprises, and at least two percent for medium enterprises.

MSMEs are any business activity whose total assets are in the range of the following: not more than P3 million for micro businesses; more than P3 million to P15 million for small firms; and more than P15 million to P100 million for medium enterprises.

Based on Bangko Sentral ng Pilipinas (BSP) data, compliance rate is only 1.93 percent for micro and small enterprises as of end-June or P189.080 billion of the total. This was higher compared to P113.479 billion same time in 2022 but still below the requirement.

BSP calculated that based on a total loan portfolio of P9.796 trillion as of end-June, banks should have lent P783.740 billion to micro and small enterprises during the period.

The compliance rate of 1.98 percent is way below the eight percent requirement. Banks merely pay regular penalties to the BSP for failing to comply with the eight percent loanable amount to MSMEs.

Meanwhile, data showed banks set aside P272.307 billion of P461.387 billion to medium enterprises as of end-June, higher than same period last year of P228.577 billion.

The compliance rate was 2.78 percent which made the threshold of at least two percent mandated allocation. Two percent of total loan portolio during the period amounts to P195.935 billion.

During the entirety of the Covid health crisis, the BSP has extended prudential relief measures to all banks to ensure that MSMEs hit by the pandemic will have credit and funding amid the duration of the lockdowns, up to the easing of restrictions and finally, to an economic rebound.

One of these relief measures was the use of loans to MSMEs as compliance to the reserve requirements (RR) of universal and commercial banks, and thrift and rural banks. However as of end-June this year, the big banks no longer have this reprieve.

The relaxation of the credit risk weight for MSME loans which reduced the capital treatment for exposures from 75 percent to 50 percent, has also expired last June 30.

In 2020, the BSP approved the prudential measures to assist MSMEs during the public health crisis, and to ensure recovery and sustainability of their businesses.

With the continued recovery in the economy, the BSP has started to wind down the relief measures implemented during the Covid crisis except for those that encourage lending to MSMEs.

Even as MSME-centric relief measures are gone, post-pandemic, the BSP has several policies and some upcoming measures that will support small businesses.

At the end of 2022, the BSP has drafted proposed rules on the basic merchant account (BMA) framework that will allow ambulant vendors and convenient stores to digitally transact payments.

BMAs are basically accounts that will allow MSMEs to accept digital person-to-merchant and business-to-business payments. This will be offered by all banks, bank-owned e-money issuers (EMI) and non-bank EMIs.

BMAs are specifically designed for ambulant vendors or street hawkers who travels – whether on foot or on tricycles or bicycles – to sell their goods. But it also includes gasoline stations and restaurants, among others.

The BSP in the proposed circular said the objective is to expand the inclusive financial system and to “promote broad adoption of digital payment among consumers and businesses given its welfare-enhancing benefits for its users and the country.

The BMAs will encourage the uptake of merchant accounts to enable seamless payments. It is designed for the small and micro merchants “who may have limited resources and capabilities to open a regular merchant account for their enterprise,” said the BSP.

Meanwhile, the banks already have tailor-fit products for MSMEs such as basic deposit accounts or BDAs.

BDAs are low-cost, no-frills account with an initial deposit of just P100 or less. The central bank first introduced the BDA in 2018. It also has no maintaining balance, no dormancy charges, and requires only simple identification for account opening.

Banks have introduced different versions of BDAs, depending on how they want to grow their market. Most have merged technology and BDAs.

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