BAP: Banks support government’s agricultural agenda

October 24, 2016

The Bankers Association of the Philippines (BAP) said the organization and its members support the government’s initiatives in improving the agricultural sector to improve the quality of life of the Filipino farmers.

According to Cesar Virtusio, BAP Managing Director, the banking industry has grown so much that it can offer more services to the farmers, beyond the Agri-Agra Law.

“We believe the banks can help the farmers in more ways than one” said Virtusio.

With a more developed Philippine capital market, Virtusio said the banking industry can help the agriculture sector by purchasing government bonds to sustain that National Government’s funding requirements to pursue its economic agenda which include programs to promote and aid the agrarian and agricultural sectors.

“In addition to the government securities, the banks can assist the agri sector by buying bonds issued by Land Bank and the Development Bank of the Philippines to ensure that these institutions remain economically viable to carry out their mandate,” he said.

The organization believes that while the government remains to be the driving force in the development of the said sector, the private sector can come in to provide supplementary service and support. This may include compliance in the form of the banking industry’s participation in the government’s PPP projects for infrastructure development which will surely benefit the sector.

On the other hand, the Managing Director noted that the agriculture landscape has drastically changed over time.
“With this change, the sector may not have enough capacity to absorb the amount of funds that the banks are mandated to lend to the farmers,” he said.

Virtusio said the law mandates all banks to set aside a total of 25 percent from the banks’ loanable funds to be lent to the agriculture sector.

Of which amount, 10 percent should be set aside specifically for Agrarian reform borrowers while the remaining 15 percent is for agricultural financing.

The law also penalizes banks that will not comply or will earn low compliance ratings from regulatory agencies.

Meanwhile, penalties on noncompliance shall be computed at one-half of one percent (0.5%) of noncompliance and under compliance. Of this amount, 90 percent of the penalties collected shall be allocated between the AGFP and the PCIC according to the needs of the agri-agra sector as provided for in the implementing rules and regulations of this Act and the remaining ten percent (10%) shall be given to the BSP to cover administrative expenses.

The entire banking industry has more or less P1.7 trillion set aside for the farming sector. To date, Philippines is the only country in the world that implements mandatory lending practice by virtue of law.

“The banking industry hopes to support a sustainable, productive and efficientagricultural sector by allocating the necessary loanable funds required by the current agricultural landscape,” Virtusio said.

Virtusio noted that the aside from the absorptive capacity problem, the banks were also sworn into fiduciary responsibility with their depositors.

“We have to keep in mind that this is private capital. This is the money of the depositors and the banks have the responsibility to make sure these funds at protected and will yield returns at the promised time,” he said.

August 2016 data from the Philippine Statistics Authority (PSA) showed that the agriculture sector has been on the decline for five consecutive quarters already.

Agriculture, Hunting, Forestry and Fishing output have contracted by 2.1 percent in the second quarter of 2016, data from the PSA showed.

Despite the arising issues from the mandatory lending, Virtusio said the government can rely on the BAP’s backing in its effort to uplift the quality of life of the Filipino farmers and improve the agriculture sector.