PHILIPPINE BANKS continued to fall short of the mandated lending quota for small businesses at end-September, data from the central bank showed.

Loans extended by the banking industry to micro, small and medium enterprises (MSME) reached P500.809 billion as of end-September, accounting for only 4.55% of their total loan portfolio of P10.99 trillion, according to the latest Bangko Sentral ng Pilipinas (BSP) data, well below the 10% requirement under the Magna Carta for MSMEs.

Under the law, 8% of these loans must go to micro and small enterprises, while 2% must go to medium-sized businesses.

At end-June, banks’ credit to MSMEs stood at just 4.52% of their loan book.

Broken down, banks’ loans to micro and small enterprises stood at P204.886 billion at end-September, equivalent to just 1.86% of their total loan portfolio and well below the 8% quota. Still, this was up from the 1.82% share seen as of June.

Meanwhile, credit disbursed to medium enterprises reached P295.923 billion in the period, accounting for 2.69% of their loan book and exceeding the 2% quota. This inched down from the 2.7% ratio at end-June.

By type of bank, universal and commercial banks lent P127.083 billion to micro and small enterprises at end-September, or 1.385% of their total loans worth P10.06 trillion

Big banks’ loans to medium enterprises stood at P240.7 billion, or 2.39% of their total lending.

Meanwhile, thrift banks extended loans worth P36.69 billion to micro and small enterprises or 3.79% of their P681.28-billion portfolio, while credit to medium enterprises hit P35.18 billion or 5.22% of the total.

On the other hand, only rural and cooperative banks met the overall MSME lending requirement in the period as they extended loans worth P40.7 billion to micro and small enterprises at end-September, equivalent to 17.38% of their P225.79-billion loan book.

They also disbursed loans worth P20 billion to medium-sized enterprises or 8.86% of the total.

Lastly, loans granted by digital banks to the micro and small enterprise sector stood at P410 million in the first nine months, accounting for only 2.08% of their loan portfolio of P19.72 billion, while they lent P40 million to medium enterprises or just 0.22% of the total. 

For years, 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.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said most banks prefer to pay penalties as they want credit guarantees to reduce the risk of lending to the MSME sector.

There is a need for “better credit information to address asymmetric information on MSME borrowers,” Mr. Ricafort said, which could be addressed by having a central credit information bureau.

Enrico P. Villanueva, a senior lecturer at the University of the Philippines Los Baños Economics Department, added that financial technology companies and nonbank entities may serve MSMEs’ funding needs better than traditional banks.

“Some banks are making serious efforts to reach out to MSMEs through their main bank or their subsidiaries. Many banks may have willingness but no expertise to handle this market segment,” Mr. Villanueva said. — Aaron Michael C. Sy