Banks forced to comply with Agri-Agra law

The Bangko Sentral ng Pilipinas has put in place a stricter monitoring system for banks that will oversee their compliance with a tougher Agri-Agra law.

Under the latest version of the law, banks that fail to allocate at least 25 percent of their loanable funds to the agriculture sector will be penalized.

The BSP now requires banks to comply with an enhanced reportorial system for their lending to the agriculture sector, the regulator said in a statement.

“The BSP developed a new reportorial system to monitor the compliance of banks under the law. This report identifies in more detail how banks comply with the provisions of [Republic Act No.] 10000,” the central bank said.

Now that the law is being fully implemented following the release of its implementing guidelines late last year, the BSP has reminded banks of their need to comply with the monitoring system.

Banks that fail to comply face a penalty of 0.5 percent of the amount of involved.

The new monitoring system will help the BSP get a clearer picture of the status of banks’ lending agricultural lending activities, the regulator said.

The establishment of a new monitoring system came about despite the opposition of some industry members to the new Agri-Agra law.

Republic Act 10000, or the new Agri-Agra law, eliminated several alternative forms of compliance to the rule mandating banks to lend 25 percent of their funds to the agriculture sector—in particular, 15 percent for agriculture-related projects and 10 percent for agrarian reform beneficiaries.

Under the old law (Presidential Decree 717), loans of banks to housing and education sectors were considered alternative forms of compliance.

But the revised law has limited the alternative forms of compliance to borrowers that will use the money for initiatives that will also benefit the agriculture sector.

Under the law’s guidelines, the BSP said, one alternative form of compliance is lending to accredited rural financial institutions (RFIs), which are expected to use the borrowed funds for relending to borrowers from the agriculture sector.

The BSP has so far accredited three RFIs through which banks may comply with the new Agri-Agra law. These are the Rural Bank of Kiamba in Sarangani, Producer’s Savings Bank in Pasig City and Rural Bank of Barili in Cebu.

“RFIs act as direct conduits to the agriculture sector and agrarian reform beneficiaries by channeling the funds specifically allotted by other banks for the program. This gives RFIs a critical role in the funding chain,” the Bangko Sentral ng Pilipinas said in a statement.

Investment in bonds issued by government development institutions—such as Land Bank of the Philippines and Development Bank of the Philippines—where the proceeds will be used to fund agricultural projects, is also considered to be another form of compliance.

Paid subscriptions to shares of stocks of government entities like Quedan and Rural Credit Guarantee Corp. and Philippine Crop Insurance Corp. and government-accredited agricultural entities have also been identified as alternative forms of compliance.