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Banking Compliance Issues Continue to Plague Philippines’ Financial Sector

The Bangko Sentral ng Pilipinas (BSP) has consistently noted that compliance with mandatory credits to agriculture and agrarian reform, as well as anti-money laundering efforts, remain the most challenging areas for banks and financial institutions in the Philippines.

Difficulty with Republic Act 10000

Republic Act 10000, or the Agri-Agra Reform Credit Act of 2009, requires banks to allocate 15% of their total loanable funds to agriculture and 10% to agrarian reform beneficiaries. Despite efforts by banks, compliance ratios remain below the required thresholds.

Compliance Ratios

As of end-March last year:

• Loans extended to the agriculture sector amounted to P639.82 billion, with a compliance ratio of only 11.02%.
• Universal and commercial banks registered a compliance ratio of 11.15%, while thrift banks and rural banks fell short at 6.61% and 16.8%, respectively.
• Loans for agrarian reform credit totaled P56.53 billion, far below the required 10%. The compliance ratio for big banks was a paltry 0.84%, while thrift banks and rural/cooperative banks fared slightly better at 1.15% and 7.36%, respectively.

Penalties and Reforms

In response to non-compliance, the BSP has collected penalties from banks totaling P10.3 billion over the past decade. The regulator is now working with government agencies to amend the Agri-Agra Law, aiming to strengthen rural development by adopting a holistic approach that considers the broader agricultural financing ecosystem and community development requirements.

Other Regulatory Challenges

Banks also cited other regulatory challenges, including:

• Credit risk management
• Anti-money laundering
• Information technology (IT) risk management
• Operational risk management

Technology Risk

The increasing reliance on technology-enabled solutions has highlighted technology risk as a common risk faced by banks.