PH’s economic pillar still getting a fraction of bank loans

Bank lending to small businesses in 2024 remained below the prescribed credit allocation despite the industry being deemed as the backbone of Philippine economy.

Latest data from the Bangko Sentral ng Pilipinas (BSP) showed total loans of the Philippine banking sector to micro, small and medium enterprises (MSMEs) reached P546.22 billion, up by 9 percent year-on-year.

But that amount of credit only accounted for 4.86 percent of the industry’s P11.3-trillion lending portfolio, way below the prescribed credit quota of 10 percent for MSMEs.

Under the law, banks must set aside 10 percent of their total loan book as credit that can be extended to MSMEs. Of this mandated ratio, banks must allocate 8 percent of their lending portfolio for micro and small businesses, while 2 percent must be extended to medium-sized enterprises.

But many banks have not been compliant, just opting to pay penalties instead of assuming the risks that typically come with lending to MSMEs.

To hit the 10-percent mandated quota last year, the local banking sector should have earmarked at least P899.77 billion as loans to micro and small enterprises, and P224.94 billion as credit to medium-sized businesses.

The latest data increased the urgency to extend more financing to MSMEs, which make up about 99 percent of total business establishments in the Philippines and provide around 63 percent of employment in the country.

Broken down, banks lent P217.12 billion to micro and small enterprises last year, cornering 1.93 percent of their loan book and falling below the required 8-percent quota.

But loans to medium enterprises amounted to P329.10 billion, accounting for 2.93 percent of banks’ lending portfolio and way above the mandated ratio of 2 percent.

By size of lender, universal and commercial banks handed out P420.9 billion in loans to MSMEs. That translated to a compliance ratio of just 4.09 percent.

Thrift banks almost hit the 10-percent quota after extending P64.83 billion in financing to the key sector, which accounted for 9.27 percent of their total outstanding loans.

Rural and cooperative banks continued to be the most reliable source of bank credit for MSMEs, which received P59.98 billion in loans. That was equivalent to a compliance ratio of 25.58 percent, way above the mandated quota.

Lastly, MSMEs received P490 million in loans from digital banks, which set aside 2.03 percent of their total lending portfolio to the sector. INQ