The share of agriculture loans and services in the Philippines increased to 18.1 percent in 2022 from 17.6 percent in 2021, according to the 2022 Countryside Bank Survey (CBS) released by the Bangko Sentral ng Pilipinas (BSP).
The rise stemmed primarily from rural and cooperative banks (RCBs). It reflected an expansion in loan products tailored to various agricultural needs, including seeds, fertilizer, working capital, farm equipment, sustainable projects, digital farming initiatives and agri-tourism activities.
A collaborative effort by the Department of Agriculture-Agricultural Credit Policy Council (DA-ACPC) and the BSP, the 2022 CBS report examined lending trends and policy implications for agricultural financing using branch-level data.
It compared agricultural lending activities by banking units in 2022 with 2021, covering loan demand, borrower profiles, interest rates, repayment trends, profitability, risk management, challenges and future plans.
Administered electronically nationwide, the survey included respondents from universal and commercial banks, thrift banks, RCBs, government-owned banks, and digital banks.
The 2022 CBS coincided with the implementation of Republic Act (RA) No. 11901, or the Agriculture, Fisheries and Rural Development Financing Enhancement Act of 2022. The survey established baseline data to monitor banks’ compliance with the law and included questions about specific agricultural loan products and services offered in 2021 and 2022 that aligned with RA No. 11901 guidelines.
Demand for agricultural loans varied among banking groups. At least 40 percent of RCBs and 74 percent of government-owned banks emphasized their lending support for small-scale agricultural borrowers.
RCBs maintained a strong commitment to supporting agricultural borrowers, including small-scale farmers and fisherfolk, as reflected in the distribution of loan borrowers across banking groups.
Geographically, universal and commercial banks had a higher concentration of borrowers in Luzon. RCBs exhibited a similar trend but with fewer borrowers in the National Capital Region (NCR). Thrift banks had more borrowers in Mindanao. Government-owned banks showed similar borrower numbers outside the NCR, with slightly more in Mindanao.
The total value of agricultural loans rose significantly by 36.7 percent in 2022 compared to 2021. Survey responses attributed the increase to growing demand for agricultural loans, possibly influenced by RA No. 11901 and intensified marketing efforts by banks.
Average interest rates on agricultural loans in 2022 ranged from 12 percent to 18 percent, higher than non-agricultural loans (7.5 percent to 16 percent).
RCBs within the NCR (NCRRCBs) reported the highest rates (16 percent to 21 percent). RCBs outside the NCR and thrift banks showed a broader range (13 percent to 20 percent).
Universal and commercial banks and government-owned banks had lower rates (4.6 percent to 7.2 percent and 3.3 percent to 6.6 percent, respectively).
Respondent banks reported an average overall loan repayment rate of 67 percent in 2022, with government-owned banks recording a higher rate of 70 percent. Some banks attributed lower repayment rates to the COVID-19 pandemic’s impact.
Overall non-performing loan (NPL) ratios for agricultural loans slightly improved from 7.3 percent in 2021 to 7.2 percent in 2022. NCRRCBs experienced significant declines in their NPL ratios for agricultural loans in 2022.
The 2022 CBS showed strong financial performance and strategic capabilities of the respondent banks. Operating income increased notably, and net income showed a collective growth trend, indicating overall profitability gains.
Most respondent banks still relied on traditional loan securities from agricultural borrowers, mainly favoring real estate mortgages. To encourage increased lending to the agriculture sector, two-thirds of respondent banks stressed the importance of credit support mechanisms, including credit guarantees/loan insurance, access to borrower information, and agricultural/crop insurance.
Banks often faced challenges when lending to the agricultural sector due to inherent risks like exposure to natural disasters, uncertain crop yields, fluctuating borrower incomes, and an aging population. They see it crucial to adopt measures that address information gaps in agricultural lending to boost confidence in extending credit to this sector.
Looking ahead, respondent banks are optimistic about the next 12 months. They anticipate favorable lending conditions for agricultural borrowers, specifically improvements in loan volumes and quality, aiming to enhance profitability.