Regulators give banks more agri-agra lending options

MANILA, Philippines – Agriculture, fisheries, and agrarian reform sectors in the country are expected to gain improved access to financing now that regulators have broadened how banks can meet mandated lending requirements for these activities.

In a statement, the Bangko Sentral ng Pilipinas said that, along with the Department of Agriculture and the Department of Agrarian Reform, it had approved amendments to the implementing rules and regulations of the Agri-Agra Reform Credit Act of 2009.

The central bank explained that this would make it easier for banks to comply with the directed lending aspect of the law, which requires banks to allocate at least 25 percent of their total loan portfolios to the agricultural and fisheries sectors, of which 10 percent will be further directed to agrarian reform undertakings.

The regulator said local banks opt to pay, on average, a total of P2 billion in penalties annually rather than comply with these provisions because borrowers are perceived to be high risk.

“The amendments to the Agri-Agra rules are the product of the concerted efforts of the DA, DAR and the BSP to mobilize bank sector financing towards the agrarian reform, fisheries, and agricultural sector by addressing challenges identified in the operationalization of the law, BSP Governor Benjamin Diokno said.

“It is a timely and positive development since it will assist this sector to recover from the impact of the COVID-19 pandemic and other natural calamities,” he added.

The amendments will broaden access of the agrarian reform sector to bank financing, streamline banks’ process of investing in agri-agra eligible securities, and promote innovative financing solutions within the law’s legal ambit.

The amendments expand the eligible modes of compliance with the 10 percent agrarian reform credit requirement by including loans to members of agrarian reform households and financing of activities that shall generally benefit agrarian reform beneficiaries or their households as well as agrarian reform communities.

It also removes the accreditation requirement for debt securities to be considered as agri-agra eligible.

The new rules also allow investments in stock shares of companies that are primarily engaged in eligible agricultural activities as an eligible mode of alternative compliance.
Finally, it also promotes special lending arrangements that consider agricultural borrowers’ requirements, such as agricultural value chain financing.

The amended rules are only an interim measure pending the passage of the proposed amendments to the Agri-Agra Law, the central bank said.

The BSP is currently pushing to enact comprehensive amendments to the Agri-Agra, Law, which recommends a financing approach that considers broader agricultural ecosystem’s requirements.