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June 23, 2024

Rural banks boost Philippine agriculture lending, but hurdles remain

The share of agriculture loans and services in the Philippines grew to 18.1 percent in 2022, up from 17.6 percent the previous, according to the Bangko Sentral ng Pilipinas’ (BSP) 2022 Countryside Bank Survey (CBS) report.

This increase was primarily driven by rural and cooperative banks (RCBs) expanding their loan products to cater to various agricultural needs, including seeds, fertilizer, working capital, farm equipment, and even sustainable and digital farming initiatives.

The 2022 CBS report, a collaboration between the Department of Agriculture-Agricultural Credit Policy Council (DA-ACPC) and the BSP, utilizes branch-level data to analyze trends and policy implications regarding agricultural financing. It offers a comprehensive view of banking units’ agricultural lending activities in 2022 compared to 2021.

Key areas covered include loan demand, borrower profiles, interest rates, repayment dynamics, profitability, risk management practices, challenges faced, and future plans.

The report showed that average interest rates for agricultural loans ranged from 12- 18 percent, higher than non-agricultural loans (7.5-16 percent). The overall repayment rate stood at 67 percent, with GBs demonstrating a higher rate of 70 percent. Some banking units attributed lower repayment rates in 2022 to the lingering effects of the COVID-19 pandemic.

The report also acknowledged that many banking units still rely on traditional loan securities, often favoring real estate mortgages, when lending to the agricultural sector. Furthermore, inherent risks associated with agriculture – such as natural disasters, unpredictable yields, fluctuating incomes, and an aging farming population – present challenges for lenders.

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