PHILIPPINE BANKS once again failed to meet the mandated lending quota for micro, small and medium enterprises (MSMEs), data from the central bank showed.
Data from the Bangko Sentral ng Pilipinas (BSP) showed bank loans granted to MSMEs grew by 10.8% to P540.92 billion as of end-June from P488.13 billion a year ago.
However, this was equivalent to 4.59% of their total loan portfolio of P11.78 trillion.
This was below the 10% overall requirement for banks under the Magna Carta for MSMEs. Under the law, banks must allocate 8% of their loan portfolio to micro and small enterprises, and 2% to medium-sized businesses.
The law defines a microenterprise as a business with total assets not exceeding P3 million, while a small enterprise’s assets range from more than P3 million to P15 million, and a medium-sized enterprise’s assets would be over P15 million up to P100 million.
Based on BSP data, loans to micro and small enterprises amounted to P220.55 billion as of end-June. This accounted for just 1.87% of their total loan book, well below the 8% quota.
Banks disbursed P320.37 billion worth of loans to medium enterprises, which accounted for 2.72% of their total portfolio, exceeding the 2% quota.
Most banks have opted to incur penalties for noncompliance with the MSME lending quota, instead of taking on the risks associated with lending to small businesses.
By type of bank, universal and commercial banks provided a total of P139.65 billion in loans to micro and small enterprises at end-June. This represented 1.42% of their P10.74-trillion total loan portfolio.
Big banks’ loans to medium enterprises stood at P260.23 billion or 2.42% of the total.
Thrift banks lent P46.95 billion to micro and small enterprises, which made up 4.04% of their P846.58-billion portfolio. Loans to medium enterprises reached P39.76 billion or 4.77% of their loan book.
Only rural and cooperative banks met the overall MSME lending quota. They disbursed P33.35 billion in loans to MSMEs, representing 20.45% of their portfolio. Their loans to medium enterprises reached P20.31 billion or 12.46% of their P163.06-billion portfolio.
Credit provided by digital banks to the micro and small enterprise sector stood at P590 million, accounting for 1.71% of their total loan portfolio of P34.74 billion.
Digital banks extended P60 million in loans to medium enterprises or 0.18% of their total loan book.
The BSP had allowed banks to count MSME loans as alternative reserve compliance with the reserve requirements to help support the sector during the pandemic, but this relief measure expired in June 2023.
However, this relief measure was extended for thrift banks and rural and cooperative banks until Dec. 31, 2025.
LOWER BORROWING COSTSAnalysts attributed the 10.8% increase in bank loans to MSMEs as of end-June to lower borrowing costs.
“The uptick in MSME loans over the past year possibly reflects the improvement in demand for credit after BSP moved aggressively to lower borrowing costs to support moderating growth momentum,” Metropolitan Bank & Trust Co. Chief Economist Nicholas Antonio T. Mapa said.
The BSP lowered borrowing costs by 25 basis points (bps) to 5% on Aug. 28. Since August 2024, it has reduced rates by 150 bps.
“The increase in lending activity is reflective of the effects of policy rate cuts spilling over to lending institutions, making borrowing more accessible,” Reinielle Matt M. Erece, an economist at Oikonomia Advisory & Research, Inc., said in a Viber message.
Mr. Erece noted that small businesses are more sensitive to interest rates, “due to the uncertainty of their cash flows and lack of large assets given their size.”
“Smaller-sized businesses have limited means of raising funds as opposed to larger corporates and thus could be more sensitive to interest rate adjustments,” Mr. Mapa said.
At the same time, Mr. Erece said many MSMEs are still unbanked and hesitant to secure loans from banks.
“MSMEs may still prefer informal lending channels and loan sharks due to their accessibility despite the risks,” he said. — Katherine K. Chan