Bangko Sentral: MSMES on the road to recovery

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THE Bangko Sentral ng Pilipinas (BSP) reported green shoots of recovery in the micro, small and medium enterprise (MSME) sector amid the ongoing Covid-19 pandemic.

Ellen Suficiencia, director for financial inclusion of the strategic communication and advocacy unit of the BSP, said as of March 2021, they already saw a higher percentage of MSMEs back to full operations as well as the decreasing percentage of companies that reported sales slowdown.

“As of June 2021, only around half of companies reported sales decline down from the two thirds from the previous quarter’s end,” she said during the virtual BSP Regional Macroeconomic Conference Series Program in Central Visayas on Tuesday, Sept. 28, 2021.

Suficiencia said the early signs of recovery are supported by the ramping up of the vaccine rollout, enabling a larger section of the economy to safely reopen and “boost our collective sense of certainty and confidence in a post-pandemic economy.”

Fewer closures

Based on the series of surveys conducted by the Department of Trade and Industry, around 28 percent of MSMEs closed their businesses while 58 percent were able to operate partially in June 2020.

Fewer business closures were reported starting the period of July to August 2020, Suficiencia said.

BSP said 99.5 percent of total business enterprises in the Philippines are MSMEs, which account for almost 63 percent of the total employment in the Philippines, equivalent to 5.4 million jobs generated in 2020.

It also contributed 35.7 percent of total value added with manufacturing having the largest share at 6.9 percent.

Central Visayas is among the top regions in terms of geographical distribution of MSMEs.

The region accounts for over 65,000 or nearly seven percent of the total number of MSME establishments in the country and contributed over 415,000 jobs or around eight percent of the total jobs generated by the MSME sector.

It is the fourth largest among the regions.

Suficiencia said that while the sector has long been recognized as a driver of inclusive economic growth, MSMEs’ access to formal finance has been long constrained.

Based on a 2015 World Bank survey, a significant number of Filipino enterprises are financed internally at 81.2 percent with only 10 percent financed by banks.

“While there is no more recent data from the survey, it is not far-fetched to think that the situation has not changed significantly,” she said.

BSP data showed that as of the first quarter of 2021, MSME loans account for only 4.6 percent of the total loans and 7.8 percent of the total business loan portfolio of banks.

This is quite a decline from the 7.9 percent and 11.9 percent share to total bank loans and total business loans in 2015, respectively, she said.

“We also note that MSME loans in Central Visayas amounted to P5.5 billion, representing 1.2 percent of the banks’ MSME loans as of the second quarter of 2021,” she said.

Since 2015, year-on-year growth of MSME loans has hovered at seven to eight percent. But in 2019, it fell significantly to 1.9 percent.

Surprisingly, in 2020, MSME loans declined year on year by 17.1 percent.

“We also see the same trend for the banks’ total business loans which fell by 9.1 percent in 2020. The trend unfortunately has not reversed yet for the first half of 2021, but we hope to see a much muted rate of decline this year,” she said.

Financing challenges

After a consistent 23 percent year-on-year growth for two years, pre-Covid, loans to micro enterprises posted the sharpest decline in 2020 but already managed to recover with a 5.9 percent growth in the first half of this year.

The loans to small enterprises, however, continued to post a double-digit negative growth at 11.1 percent.

She said it’s worth noting that small enterprise loans posted a minute year-on-year growth even prior to the pandemic, even declining to 7.1 percent in 2019.

“This may reflect the unique financial challenge faced by small enterprises whose loan requirements may be too big for microfinance but not big enough for bank business loans. These observations would need further evaluation. Anticipating the exacerbated financing access challenge of the MSMEs, the BSP was quick to issue bold regulatory relief measures to stimulate bank lending to MSMEs amid the ongoing pandemic,” she said.

Boost lending

The BSP said it has responded swiftly by deploying time-bound credential measures to boost lending to the MSME sector.

Suficiencia said the BSP assigned a zero percent risk weights to MSME loans covered by the programs of the government to encourage banks to lend to MSMEs particularly those in the agri-fisheries sector.

It also applied temporary reduction in the credit weights of MSME loans while new loans to MSMEs have also been included as part of the banks’ compliance with the reserve requirements.

BSP said there is also relief on the reporting of past due and non-performing loans of borrowers severely affected by the pandemic. (JOB)

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