More banks to expand agri lending — BSP survey

About 76 percent of banks had planned on expanding their lending to the agriculture sector in 2022, according to the results of the first “Countryside Bank Survey: A Baseline Report” (CBS) survey conducted by the Bangko Sentral ng Pilipinas (BSP).

The CBS results, released on Thursday, Feb. 9, aims to better monitor and assess lending trends to the agriculture sector and to find ways to improve it. The survey, however has a lag time and the initial 87-page report covered the gathered data for 2021 only..

The BSP said that to be able to release a more updated and regular review of emerging trends in agricultural credit, it will conduct the next report or the 2022 CBS in the second quarter of this year.

The survey included banks’ plans and prospects for agricultural lending, as well as its outlook for the next 12 months, which in this case is the 2022 year. It covered 2,500 sample unit banks representing 36 percent of the total banking offices outside of the National Capital Region.

In 2021, about 76 percent of surveyed banks were planning to expand their lending to the agriculture sector in the next 12 months, according to the survey. Those that said they will definitely lend more are 93 percent of thrift banks, 87 percent of government-owned banks, 72 percent of rural and cooperative banks, and 53 percent of the universal and commercial banks.

However, half or 47 percent of the big banks admitted having no plans of expanding their agricultural loan portfolio in 2022.

The BSP said surveyed banks generally expect no change in lending and deposit rates while majority anticipate higher profits in 2022.

The factors that would encourage banks to expand lending to agriculture sector are the following: to respond to increasing demand for agricultural loans as the pandemic is getting controlled; to serve as compliance to the mandatory credit allocation; to fulfill the bank’s mandate to extend agricultural loans; to help farmers expand their businesses and improve their quality of life; to provide for the farmers’ financing needs and stop them from availing high-interest rate loans from informal lenders; and to support the nation’s goal of attaining food security, financial stability, and economic development.

The BSP said about 60 percent of surveyed banks have improved expectations and outlook for 2022 with increased demand for agricultural and non-agricultural loans.

Majority of the banks in the CBS project that their available loanable funds would be higher or at least be at the same level as in 2021. Meanwhile, 58 percent of surveyed banks think borrowers’ capacity to repay their loan will be better in 2022 while 32 percent expect no change.

About 40 percent of surveyed banks also expect a higher need for loan restructuring in 2022.

Based on the survey, the banking sector’s agricultural lending in 2021 versus 2020 further declined because of low interest rates and due to the more worrisome Covid situation at the time.

It noted that in 2021, the share of agriculture to total industry loans ranged from 11 percent to 15 percent and this was an under-compliance of many banks from the mandatory 25 percent credit for the agriculture and agrarian sector under the Agri-Agra Law of 2009. The number of borrowers were also 30 percent lower compared to 2020.

“The demand for agricultural loans in 2021 remained relatively tepid amid the low policy rate environment (but) about 62 percent of the respondent banks reveal a positive outlook following higher demand for agricultural loans in 2022,” said the BSP.

In 2021, the average amount of bank loan to the agriculture sector was P10 million or less per bank with many of the banks’ releasing an aggregate of no more than P5 million.

The BSP said the decrease in agricultural lending was due to low credit demand amid the pandemic. The quarantine restrictions and health protocols likewise diminished client’s capacity to earn, and discontinued or slowed down farming activities and businesses, said the BSP.

In the report, the other challenges in 2021 in terms of lending to agricultural sector were: increased credit risks due to natural calamities, pests and diseases, fluctuating/low prices of produce, outdated farming techniques, etc.; lack of viable projects as most farm lands are fragmented or in far-flung areas with poor road access and security condition, agricultural produce do not have assured market/buyers; and inadequate acceptable collateral offered by agricultural borrowers; insufficient cash flow or unstable income from farming activities and no other source of income.

Other challenges include: poor/low credit score and negative credit bureau findings due to diversion of loan proceeds, over indebtedness of farmers; and lack of information/data on potential clients to establish the borrowers’ paying capacity, such as, proof of income/sales and other relevant documentary requirements.

The 2021 CBS is an inaugural survey jointly conducted by the BSP and the Department of Agriculture- Agricultural Credit Policy Council.

“It aims to analyze detailed trends and present emerging policy issues on bank behavior towards lending to the agriculture sector using branch-level data,” said the BSP.

The CBS mainly focused on the banking units’ agricultural lending experience such as: its practices and outcomes in loan releases and demand; interest rates and other charges on bank loans; borrowers’ repayment and debt position; bank risk management; bank profitability problems encountered by banking units; effects of the pandemic on banking performance; and plans and prospects by banks for the next year.