Bangko Sentral ng Pilipinas Gov. Nestor Espenilla Jr. PDI FILE PHOTO / JOSEPH AGCAOILI
The new governor of the Bangko Sentral ng Pilipinas (BSP) on Friday wants financial institutions to make more loans available to credit-starved small entrepreneurs whose businesses are the pillar of growth for the local economy.
In a speech in Makati City, BSP Governor Nestor Espenilla Jr. assailed the lack of risk appetite among banks for granting loans to more micro, small and medium enterprises (MSMEs), which he blamed on the “asymmetric” distribution of information about these would-be borrowers.
The country’s top banking regulator told a gathering of credit managers that the’ MSME sector accounts for 99.5 percent of the country’s total establishments and employ around 61.6 percent of the workforce. Of these workers, 54.7 percent are employed by micro and small enterprises.
“MSMEs are diverse representing a wide range of industries, including 60 percent of the country’s exporters,” Espenilla said. “And yet, despite this sector’s potential as an enablers and critical engine of development, MSMEs consistently cite ‘access to finance’ as a challenge.”
The BSP chief pointed out that banks’ bias for lending to large corporations — despite the relatively lower interest rates that they could earn from — is a factor of the lack of a comprehensive picture on the risk profile of local small businesses.
This “asymmetric” distribution of information works against small borrowers which either have to shoulder higher loan rates from risk averse banks or are shut out of the formal financial system altogether.
Because of this, many small businesses are forced to rely on the “informal sector” — banking euphemism for loan sharks — to meet their credit requirements.
“I urge you to be mindful of this and to help prevent further proliferation of this practice,” Espenilla said, as he urged banks to use technology and “innovative thinking” to better serve the underserved sectors of society.
At the same time, the BSP chief promised that regulators would not get in the way of banks’ “creative” approach to doing business as long as they stay within norms and are fully aware of the risks of their practices.
“This resourcefulness — prudently exercised — will not be stifled,” Espenilla vowed. “Prudence means taking risks that you fully understand, and know how to fully manage when things do not go as expected. This includes having enough capital.”
The BSP chief also noted the strong macroeconomic environment currently prevailing in the country which made it more conducive for risk taking activities. In particular, he pointed out that the total bad loans of the Philippine banking system now stand at only 2 percent, down from the 18 percent at the height of the East Asian financial crisis two decades ago.
“The BSP is eager to push boundaries until they reach the peripheries and the grassroots,” he said. “We want more of our countrymen to save, and borrow for productive uses, to avail of investments and insurance products, and send and receive payments securely and efficiently. This is the only way for economic growth to be truly meaningful.” JPV