Loans to SMEs surge as BSP ramps up relief measures

The amount of loans for small businesses have surged in recent months after the central bank put in place relief measures that would encourage financial institutions to keep lending to this sector that employs nine out of 10 Filipinos.

More importantly, Bangko Sentral ng Pilipinas (BSP) Governor Benajmin Diokno said regulators were prepared to undertake more measures to help the country’s entrepreneurial class, including further reducing banks’ reserve requirements that would free up more cash for new loans.

“We are happy to note that following the implementation of regulatory relief measures, banks are up to their task,” he said in a speech to foreign investors delivered last week. “We have seen a significant increase in loans, more so to micro, small and medium enterprises.”

According to the central bank chief the average daily loans to small firms have jumped 750 percent, from P9.9 billion in April 2020 to 84.2 billion in July 2020.

“This is a big relief for small businesses,” he said.

The central bank recently decided to pause its series of monetary easing moves, which had so far released an estima­ted P1.3 trillion into the local financial system, to help the system digest the fresh liquidity.

But Diokno said he was ready to act if warranted.

“Let me be clear: the BSP is prepared to do more if warran­ted,” he said. “The BSP remains committed to a disciplined- and evidenced-based monetary policymaking as it pursues its price stability objective.”

“There is room to further reduce the reserve requirement,” he added. “The Monetary Board earlier this year gave me authority to implement a 400-bps cut in the reserve requirement for 2020. So far I have done a 200-basis point cut in the reserve requirement for universal and commercial banks.”

He earlier noted that even smaller banks had gotten into the action, with preliminary data showing that rural and cooperative banks lent out more money or refinance existing loans for small entrepreneurs in compliance with the recent cut in the sector’s statutory reserve requirements.

At the end of July 2020, the central bank said that 66 rural and cooperative banks lent P1.5 billion to small and medium firms compared to P1 billion by only 39 from the same sector at the end of April.

Also, 10 rural and cooperative banks used new loans to fund critically impacted large enterprises worth P100 million as compliance with their reserve requirements.

Diokno acknowledged concerns that the ongoing public health crisis would lead to an increase in loan defaults, but assured that such is not the case, based on the latest data.

“Based on our assessment, this will not be the case,” he said. “We expect any increase in nonperforming loans to be modest.”

A BSP survey conducted in April among top 20 universal and commercial banks, top 20 thrift banks, and top 20 rural and cooperative banks showed that, on average, these banks expect their bad loans to increase from 2.4 percent last March to 4.6 percent to December 2020.

“This likely increase is manageable,” the central bank chief said. INQ