BSP eyes lending-rules change
TUESDAY, 21 AUGUST 2012 20:16 JUN VALLECERA / REPORTER
THE Bangko Sentral ng Pilipinas (BSP) would rather that some of the
mandatory sectoral loan allocations be stricken off the books to allow
for more efficient lending than is possible at present.
Such mandates as the so-called agri-agra lending law, the gross receipts
tax (GRT) or even the BSP's reserve requirement may be repealed or
recalibrated to allow the banks to lend to sectors where the economic
payback is greatest.
By dictating where bank funds are applied, the government goes against
the grain of effective financial intermediation where lending practices
and attendant costs or availability are best determined by market forces.
"Bank lending could increase if the mandatory lending allocations are
removed," said Deputy BSP Gov. Diwa C. Guinigundo on Tuesday.
He said loan demand, no matter the 12.2-percent loan growth posted at
end-June this year, was considered less than optimal by the regulators.
"Loan demand is still too low despite the launching of the
Public-Private Partnership program," Guinigundo said in viewing actual
loan activities after the government launched a massive infrastructure
build up program costing tens of billions of pesos when pursued in earnest.
Under the law, the banks are told to set aside 15 percent of total loan
portfolio as lending to agricultural borrowers and another 10 percent to
agrarian reform beneficiaries.
Because borrowers often do not meet the strict requirements imposed by
banks, so-called alternate compliance later revoked were allowed.
Private bank executives have since complained the agri-agra lending rule
has made for more complicated lending in that regulatory penalties were
often weighed against the likelihood of losing good money on a bad
project whose proponents do not even bother to present feasibility
studies to support their loan applications.
Bank executives have to account for their performance every year before
shareholders who do not relish receiving diminished dividends on account
of a mandate most banks view as an unreasonable tax.
The mandatory allocations are on top of the GRT imposed on the interest
income on loans generated by lending to the micro and small and medium
scale entrepreneurs or MSMEs, itself also a mandated lending sector.
Even the deposit reserve requirement the BSP tells the banks to observe
is a form of tax that goes against the grain of allowing the banks to
determine where their funds may be spent.
The mandatory reserve requirement is made worse by the recent monetary
board decision discontinuing the practice of paying the banks a certain
fee in exchange for keeping their money in the vaults of the BSP.
This means that on top of forcibly agreeing to keep the funds in reserve
at the BSP, the banks also lost what little reward they used to get when
the BSP initially agreed to remunerate them for observing the deposit
reserve rule.
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