Lenders oppose BSP’s proposed credit quota for innovation dev’t

THE CENTRAL BANK wants to require lenders to allocate credit for the development of new technologies and innovations for various services. — BW FILE PHOTO

THE CENTRAL BANK’S proposal to impose a lending quota for the development of new technologies and innovations for various services will affect smaller lenders negatively as these do not match their market, according to the Rural Bankers Association of the Philippines (RBAP).

RBAP President Albert T. Concha, Jr. said they have filed a joint petition for declaratory relief with the Bankers Association of the Philippines and the Chamber of Thrift Banks regarding the proposed credit allocation.

“We highly contest this mandatory credit allocation for innovation and technology as there is hardly any, possibly none at all, borrower who would qualify for this category in the areas where RBs (rural banks) operate in,” Mr. Concha said in a Viber message.

“We find this [proposal] oppressive as stiff penalties will be imposed on RBs when in fact non-compliance is already beyond the rural banks’ control,” Mr. Concha said.

“While we recognize the need to support technology and innovation in our country, it should not be done at the expense of rural banks,” he added.

The Bangko Sentral ng Pilipinas (BSP) in March released a draft circular proposing that banks must allocate 4% of their loanable funds for innovation development credit.

Eligible loans that can be included as direct compliance under the proposal are those granted to qualified borrowers after Aug. 6, 2019. These borrowings should have been used to develop new technologies and innovations for products, processes, organization, and marketing.

Credit that can be counted as alternative compliance for innovative development will include loans to micro-, small-, and medium-sized enterprises that have businesses related to e-commerce and supply chain financing.

Banks’ investments in bonds for innovation and those related to food security, blue economy, education, health, clean and renewable energy, climate change, infrastructure, human capital development, digital economy and transportation will also count as alternative compliance.

Lastly, investments in equities of startups may also be counted as compliance, subject to limits set by the central bank.

The proposal showed the BSP is also looking to make innovative development lending serve as an alternative mode of compliance to the mandatory credit allocation for agriculture and agrarian reform.

Based on the proposal, banks will face penalties equivalent to 0.5% of the minimum compliance requirement if they fail to meet the credit quota.

The industry-wide net profit of rural banks reached P4.241 billion in 2021, rising by 64% from the P2.593 billion in 2020, based on BSP data.

Their cumulative assets increased by 10.6% to P287.03 billion from P259.521 billion a year earlier. — L.W.T. Noble