Banks continue to miss 10% lending quota for MSMEs

PHILIPPINE BANKS failed to meet the mandated quota for small business loans in the first nine months of 2023, preliminary data from the Bangko Sentral ng Pilipinas (BSP) showed.

Loans extended by the banking industry to micro-, small-, and medium-sized enterprises (MSMEs) amounted to P552.404 billion as of end-September, which made up only 4.63% of their total loan portfolio of P11.9 trillion.

This was 21.6% higher than P454.303 billion in loans extended to the MSME sector in the January-to-September period in 2022.

Under Republic Act No. 6977 or the Magna Carta for MSMEs, banks are required to allocate 10% of their total loan portfolio for small businesses to boost the sector — 8% for micro and small enterprises and 2% for medium-sized enterprises.

However, banks have long opted to incur penalties for noncompliance instead of taking on the risks associated with lending to small businesses.

BSP data showed loans for micro and small enterprises amounted to P214.748 billion as of end-September, comprising just 1.8% of their total loan portfolio and well below the 8% quota.

On the other hand, lending to medium-sized enterprises stood at P337.656 billion in the period. This is equivalent to 2.83% of the banks’ credit book and above the 2% minimum ratio required under the law.

Based on the type of bank, BSP data showed universal and commercial banks disbursed P153.105 billion in credit to micro and small enterprises as of end-September, equivalent to only 1.44% of their P11.13-trillion loan portfolio.

Big banks’ loans to medium-sized enterprises stood at P291.452 billion or 2.62% of their loan book.

At the same time, thrift banks were also unable to meet the quota as their loans to micro and small enterprises reached P29.228 billion or 3.81% of their P591.821-billion loan portfolio.

Still, thrift lenders went beyond the credit quota for medium enterprises as their loans to the sector hit P27.903 billion or 4.75% of their loan book.

Meanwhile, rural and cooperative banks extended loans worth P32.346 billion to micro and small enterprises. This is equivalent to 16.39% of their P197.401-billion credit book, and well above the minimum amount required by law. Their loans to medium enterprises hit P18.3 billion or 9.27% of their loan portfolio.

The BSP also recorded the loans granted by digital banks to the MSME sector. Digital banks disbursed P70 million in credit to micro and small enterprises in the first nine months of 2023, representing 0.4% of their P17.25-billion loan portfolio.

Digital banks did not extend loans to medium enterprises.

During the pandemic, the BSP allowed banks to count MSME loans as alternative reserve compliance with the reserve requirements to help prop up the sector. This relief measure expired on June 30, 2023.

However, the relief measure was extended to thrift banks as well as rural and cooperative banks until Dec. 31, 2025.

Based on separate central bank data, small banks allocated a total of P8-billion and P6.5-million loans to MSMEs and large enterprises, respectively, for the week ending Oct. 19.

The unwinding of the pandemic relief measure coincided with the reduction in banks’ reserve requirement ratios on June 30, 2023.

In April 2023, the central bank launched the Credit Risk Database Scoring Model, which is expected to serve as an additional tool that lenders can use to analyze the creditworthiness of MSMEs, especially those without credit history or enough collateral. — Keisha B. Ta-asan