BSP pushes for sustainable finance amid Agri-Agra compliance – Manila Bulletin

The Bangko Sentral ng Pilipinas (BSP) is still working on the inclusion of sustainable projects or “green” finance as part of banks’ compliance with the revised Agri-Agra Act.

BSP Governor Felipe M. Medalla said the inclusion of green finance financing in Agri-Agra compliance is part of measures to encourage financing of sustainable projects.

“We hope to secure the necessary revisions to the Agri-Agra Act so that sustainable finance can be part of the mandatory credit compliance to the agri-agra sector,” Medalla said.

BSP Governor Felipe M. Medalla (BSP photo)

A new law has recently been enacted which is in line with the Agri-Agra law. Republic Act No. 11901 or the “Strengthening Agriculture, Fisheries, and Rural Development Funding Act of 2022” became law last July.

Medalla is committed to effectively and efficiently implementing RA No. 11901 to help the agricultural sector recover from the impact of the pandemic. Considered a new Agri-Agra Act, it provides a comprehensive financing framework for the development of the relevant sectors, and it also improves access for rural communities and farming and fishing households, including their micro, small and medium enterprises (MSMEs), to financial services and programs.

Basically, the new Agri-Agra Act has expanded agricultural credit and rural development financing to include agro-tourism, digitization of agricultural activities and processes, public rural infrastructure, programs that promote health and well-being rural communities and activities that improve livelihood skills.

The law also encourages funding for environmental, social, and governance projects, including green projects that support sustainable and inclusive economic growth. However, it does not include these sustainable projects as an alternative for banks’ Agri-Agra compliance.

Under the new law, the BSP said that banks are no longer required to allocate 10% of their loan portfolio to land reform beneficiaries and 15% to agricultural activities. The law now gives banks more flexibility to allocate the combined 25% mandatory credit or quota to a range of borrowers in the agriculture, fisheries and land reform sectors.

Last month, BSP published proposed rules and regulations that will govern the compulsory funding of Agriculture, Fisheries and Rural Development or AFRD under RA 11901.

The draft circular states that the BSP expects banking institutions to design and offer financial products and services that “address the specific needs of their agricultural clients, taking into account their cash flows and the gestation period and harvest of funded agricultural products/activities/projects. ”

AFRD financing refers to loans and investments intended to increase the productivity and competitiveness of the agricultural sector and to finance the sustainable development of rural areas.

Prior to the new law, bank loanable funds for agriculture and land reform credit continued to be below the mandatory allocation.

Bank lending to the agricultural sector totaled 847.95 billion pesos at the end of June this year, up 7.4 percent from the same period last year of 789.66 billion pesos.

The amount was less than the compulsory credit allocated as agricultural loans in the Agri-Agra Act. Of the 847.95 billion pesos, direct bank compliance totaled 436.07 billion pesos while alternative compliance under the law amounted to 411.89 billion pesos during the period. Based on BSP data, banks should have lent P822.34 billion as direct compliance and P1.23 trillion as alternative compliance under the previous Agri-Agra Act.

At the end of June, banks’ compliance with the Land Reform Credit, which is expected to be 10% of their total loanable amount of 8.22 trillion pesos, was just 0.78%. Meanwhile, the percentage or ratio of compliance with the 15% of other agricultural credits was only 9.53%.

Meanwhile, the BSP, to encourage financing of green finance, has already issued three important regulations on sustainable finance.

It issued Circular No. 1128 issued on October 26, 2021 on the Environmental and Social Risk Management Framework or ESRM and Circular No. 1149 issued on August 23 this year covering guidelines on integrating sustainability principles into the investment activities of banks.

Last month, Medalla said it hoped the number of banks with sustainable funding would increase after the issuance of Circular No. 1149 which governs green investments.

Circular n° 1149 is the third phase of the regulation of sustainable finance. The guidelines cover bank book investments or portfolios of debt and equity securities that are not traded by the bank as part of its proprietary position.

The first and second phases of the regulations set expectations for the integration of sustainability principles into banks’ core strategies, governance and risk management frameworks, particularly in the areas of credit and operational risk. These rules also incorporate the principle of proportionality, which takes into account the size, risk profile and complexity of a bank’s operations.

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