By Luisa Maria Jacinta C. Jocson, Senior Reporter
THE PHILIPPINE banking system continued to miss the mandated lending quota for micro, small and medium enterprises (MSMEs) as of end-December 2024, Bangko Sentral ng Pilipinas (BSP) data showed.
Loans granted by the banking sector to MSMEs amounted to P546.22 billion at end-December, accounting for just 4.86% of their total loan portfolio of P11.25 trillion.
This is well below the 10% overall requirement under the Magna Carta for MSMEs. Under the law, banks must allot 8% of their loan book to micro and small enterprises. Banks need to allocate 2% of their loan portfolio to medium-sized businesses.
Under the Magna Carta, an enterprise is typically considered micro if its total assets are not more than P3 million while a small enterprises’ assets would range from more than P3 million to P15 million. A medium enterprise’s assets would be from over P15 million up to P100 million.
Most banks have opted to incur penalties for noncompliance with the MSME lending quota instead of taking on the risks associated with lending to small businesses.
Broken down, credit disbursed to micro and small enterprises stood at P217.1 billion during the period, equivalent to just 1.93% of their total loan book, falling short of the 8% quota. However, this was higher than the 1.86% share logged at end-September.
Meanwhile, loans to medium enterprises reached P329.1 billion at end-December. This accounted for 2.93% of their total portfolio, exceeding the 2% requirement. It also rose from the 2.69% posted in the previous quarter.
By type of bank, universal and commercial banks extended P138.07 billion worth of loans to micro and small enterprises at end-December, or 1.46% of their total loans worth P10.29 trillion.
Big banks’ loans to medium enterprises amounted to P270.7 billion or 2.63% of the total.
Thrift banks allocated P37.7 billion in loans to micro and small enterprises, representing 3.83% of their P699.01-billion loan book. Credit to medium enterprises reached P37.64 billion or 5.44% of the thrift banks’ portfolio.
Only rural and cooperative banks met the overall MSME lending quota. They extended P40.91 billion to MSEs (16.75% of their portfolio) and P20.71 billion to medium enterprises (8.83% of their portfolio).
Loans disbursed by digital banks to the micro and small enterprise sector stood at P445 million at end-December, accounting for 1.82% of their lending portfolio of P24.48 billion, while they lent P50 million to medium enterprises or just 0.21% of the total.
Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said banks’ failure to hit the MSME lending quota may have to do with “asymmetric information” on the credit of small businesses in the country.
“Though banks have increased efforts to tap more of the MSME loan market in recent years, as partly supported by loan guarantees to encourage more lending to this market.”
“There were even incentives during the pandemic such as allowing lending to MSMEs as part of compliance with required reserves, though this was only temporary during the pandemic,” he added.
The BSP allowed banks to count MSME loans as alternative reserve compliance with the reserve requirements to help support the sector during the pandemic, but this relief measure expired in June 2023.
However, it was extended for thrift banks and rural and cooperative banks until Dec. 31, 2025.
Mr. Ricafort also noted banks were likely pricing in more risk when they consider lending to small enterprises.
“Given the higher credit risk involved, there are also higher risk weights on riskier lending activities in view of tighter capitalization standards adopted by regulators and required on banks in recent years,” he added.
