Dry spell hitting rural banks

Rural banks will seek relief from the central bank for possible losses from loans extended to farmers who have been hit hard by the El Niño-induced dry spell. "[Our loan quality] will deteriorate so we are going to ask for regulatory relief from the central bank," Joseph Omar O. Andaya, president of the Rural Bankers Association of the Philippines (RBAP), said in a telephone interview on Sunday. Rural banks lend half of their portfolio to the agriculture sector. Andaya said the RBAP board would meet on Tuesday to finalize its request for the Bangko Sentral ng Pilipinas (BSP) to reopen its assistance to banks affected by tropical storm Ondoy last year, this time to banks whose clients have been affected by the drought. Central bank data showed that rural banks’ bad loan ratio had worsened by 0.45 percentage point to 10.58 percent as of last September from a year earlier. Meanwhile, their profits slid by P5 million to P2.5 billion due to lower income from their nonlending business. There were 642 rural banks as of last September. Last Friday, Agriculture Secretary Bernie G. Fondevilla told reporters El Niño-related crop losses had reached P8.4 billion since January. Losses may reach P20 billion at the worst. Data from the Philippine Atmospheric, Geophysical and Astronomical Services Administration showed dry weather would persist until June, with almost all regions experiencing "way below normal" to "below normal rainfall." After tropical storm Ondoy hit the country last October, the central bank excluded loans of borrowers in affected areas from the computation of past due ratios as long as these were restructured. The regulator also cut to 1 percent from 5 percent the general loan loss provision for restructured loans of borrowers in these areas. The central bank likewise suspended the penalty for reserve deficiencies and ongoing rehabilitation programs for rural, cooperative and thrift banks. It also allowed these banks to spread out their allowances for probable losses from loans to individuals and businesses directly affected by Ondoy over five years. The RBAP’s Andaya noted that if the dry spell worsens, rural banks might cut back on lending to farmers. — Don Gil K. Carreon, BusinessWorld