By Luisa Maria Jacinta C. Jocson, Senior Reporter

PHILIPPINE BANKS continued to miss the mandated lending quota for small businesses as of end-March, data from the Bangko Sentral ng Pilipinas (BSP) showed.

Loans granted by the banking system to micro, small and medium enterprises (MSMEs) amounted to P546.82 billion at end-March, equivalent to just 4.63% of their total loan portfolio of P11.82 trillion.

This fell short of the 10% overall requirement under the Magna Carta for MSMEs. Under the law, banks must allocate 8% of their loan portfolio to micro and small enterprises, and 2% to medium-sized businesses.

The law defines a microenterprise as a business with total assets not exceeding P3 million, while a small enterprise’s assets range from more than P3 million to P15 million, and a medium-sized enterprise’s assets would be over P15 million up to P100 million.

BSP data showed loans to micro and small enterprises amounted to P220.82 billion in the first quarter, accounting for just 1.87% of their total loan book. This was significantly below the 8% requirement.

Loans disbursed to medium enterprises reached P326 billion during the period. This accounted for 2.76% of their total portfolio, exceeding the 2% quota.

For years, most banks have opted to incur penalties for noncompliance with the lending quota instead of taking on the risks associated with lending to small businesses.

By type of bank, universal and commercial banks’ loans to micro and small enterprises stood at P138.85 billion at end-March, equivalent to 1.41% of their total loans worth P10.81 trillion.

Big banks granted P267.02 billion worth of loans to medium enterprises or 2.47% of the total.

Thrift banks extended loans worth P39.91 billion to micro and small enterprises, representing 3.85% of their P736.15-billion loan book. Credit to medium enterprises reached P38.67 billion or 5.33% of the thrift banks’ portfolio.

Only rural and cooperative banks met the overall MSME lending quota. They extended P41.53 billion in loans to MSEs or 16.18% of their P245.1-billion credit portfolio, and P20.26 billion to medium enterprises or 8.26%.

Digital banks’ loans to micro and small enterprises reached P540 million at end-March, accounting for 1.78% of their lending portfolio of P30.21 billion. They also lent P60 million to medium enterprises or just 0.2% of the total.

“The missed lending quota may be an indication of a pessimistic economic outlook by MSMEs which make them hesitant to borrow,” Reinielle Matt M. Erece, economist at Oikonomia Advisory and Research, Inc. said in a Viber message.

“In addition, financial inclusion may also need a boost as MSMEs, especially microenterprises, may be tempted to borrow more from informal channels for their accessibility,” he added.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the failure to meet the lending quotas was due to small business’ credit risk and the need for track record on borrowings.

“That is why it is also important to have credit information on the track record of borrowers,” he added.

Mr. Ricafort cited the need for more “credit-related information to manage asymmetric information on MSME borrowers, such as centralized borrower information.”

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.