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MANILA - Bank lending could be brisker if credit quotas for certain sectors were removed, the Bangko Sentral ng Pilipinas said.
"Loan demand is still too low despite the launching of the Public-Private Partnership Program," said Deputy Governor Diwa C. Guinigundo, referring to the Aquino administration's infrastructure build-up program.
The PPP Program itself has been slow to pick up, as each project undergoes intense scrutiny by the national government. In fact, overall government spending has fallen behind program at end-June.
This is reflected in BSP data, with the weak public sector demand for credit putting a break on overall bank lending. At end-June, commercial bank lending rose 12.2 percent year-on-year.
The BSP is hoping loan demand would pick up after last month's cut in its policy rates to fresh record lows of 3.75 percent and 5.75 percent for the overnight borrowing and lending windows, respectively.
“Bank lending could increase if the mandatory lending allocations are removed,” Guinigundo said.
Among such credit quotas are the Agri-Agra Law, which requires lenders to set aside 15 percent of their total loan portfolio to agricultural borrowers and another 10 percent to agrarian reform beneficiaries.
Failure to meet the quota had led in the past to the establishment of alternative compliance schemes just so banks avoid penalties.
Another mandatory credit allocation is that for small and medium enterprises. Bank also had failed to comply with this quota for fear of issuing loans to enterprises that don't have credit discipline, much less a track record of earnings.
Other restrictions on bank lending are the gross receipts tax, which is slapped on interest income on loans to SMEs, and the mandatory reserve requirement, which compels banks to deposit with the BSP a certain amount proportional to their assets, thus foregoing the income that the bank could have earned from lending out the money.
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