Banks’ mandated MSME lending falls

BANK loans to micro, small and medium enterprises (MSMEs) missed the required level at the end of last year, according to the Bangko Sentral ng Pilipinas.

Latest central bank data showed that P480.50 billion were set aside for lending to MSMEs at end-2020, falling short of the P841.26 billion mandated under Republic Act 6977, or the “Magna Carta for MSMEs.”

The figure was equivalent to only 5.71 percent of the P8.41 trillion in total loanable funds for the period, lower than the 10-percent threshold set by the law.

MSME lending during the period was also P98.63 billion smaller than the P579.13 billion extended a year earlier.

In a breakdown, big banks provided P373.70 billion in loans; thrift banks, P64.33 billion; and rural and cooperative banks, P38.02 billion.

The latest data was consistent with the results of the central bank’s fourth-quarter 2020 Senior Bank Loan Officers’ Survey, which reported that results based on the diffusion index (DI) approach, 2,3 continued to indicate a net tightening of overall credit standards for loans across all borrower firm sizes, specifically, top corporations, large middle-market enterprises and MSMEs.

“As indicated by respondent banks, the observed tightening of overall credit standards was largely due to less favorable economic outlook, deterioration in the profitability of bank’s portfolio and profiles of borrowers, and reduced tolerance for risk, among other factors,” it stressed.

On specific credit standards, the net tightening of overall credit standards was reflected in terms of reduced credit line sizes; stricter collateral requirements and loan covenants; and increased use of interest rate floors.

Meanwhile, the report added that some form of easing was revealed in terms of narrower loan margins and longer loan maturities.

In the first quarter of 2021, it said the DI-based results showed respondent banks’ anticipation of tighter overall credit standards for household loans due to less favorable economic outlook, expected deterioration in borrowers’ profile and reduced tolerance for risk.