Landbank must increase loans to agri
Landbank should be commended for doing a lot in helping the agriculture sector—but it can do so much more.
In its latest annual report (2023), its loans to the agriculture chain amounted to P755.1 billion. This constitutes only 51 percent of its total loans. If we were to increase the share to 80 percent, there would be P441.2-billion additional funds to help agriculture.
Accessible credit is a major obstacle to the sector’s development. So why is Landbank not providing this possible extra P441.2 billion?
It is because Landbank, now classified as a universal bank, must follow the Bangko Sentral ng Pilipinas’ (BSP) CAMELS ratings. Otherwise, it will lose its status as a universal bank.
This may not be all that bad. Landbank may still become a more effective bank whose focus will be on agriculture.
Bank assessment
CAMELS is a supervising rating system used by the BSP to assess the overall health and stability of banks and financial institutions. Evaluation is based on the following six criteria: (1) C, for capital adequacy, which ensures a bank’s capital strength and ability to absorb losses; (2) A, for asset quality, which assesses the quality of a bank’s loans and assessments; (3) M, for management quality, which evaluates the competence and effectiveness of its management; (4) E, for earnings, which analyzes its profitability and sustainability of earnings; (5) L, for liquidity, which examines the bank’s ability to meet short-term financial obligations; and (6) S, for sensitivity, or the degree by which the bank can handle market risks.
Landbank does excellently using the rating system. It achieved a record-high net income of P40.3 billion in 2023. But, again, only 51 percent of its loans went to the agriculture chain.
Agriculture lending is risky, indeed. Had Landbank increased this lending share to 80 percent, its CAMELS rating in both asset quality and earnings would likely go down.
Alyansa Agrikultura, during a Management Association of the Philippines (MAP) agribusiness committee meeting last Feb. 27, said Landbank, being the country’s agriculture bank, should focus even more on agriculture lending.
Agriculture banks in other nations with significantly successful agriculture are not required to turn in a high profit as advocated by CAMELS. In fact, some of these banks are even subsidized by their respective governments. Their focus is on agriculture loans, even if they admit it is risky.
A proposal during the MAP meeting was to have a thorough study comparing agriculture banks to determine if a reengineering of Landbank should be considered.
Coconut case
Consider the coconut intercropping case provided by the Philippine Coconut Authority (PCA). Since intercropping entails a risk level that universal or commercial banks avoid, it would take an agriculture bank to consider it.
We have 3.6 million hectares allocated to coconut trees in 68 out of 82 provinces. There are 2.5 million registered coconut farmers and farmworkers, the poorest in the sector, with half of them living on less than P50 a day.
The PCA mandate is both to promote coconut production and improve farmers’ welfare. The latter can be done through higher income from coconut intercropping. However, 2 million out of our 3 million coconut hectares don’t practice intercropping at all.
For a low investment cost ranging from P30,000 to P68,270 per hectare with at least a 200-percent return on investment, Landbank could get first dibs by considering these proposals.
The P75-billion kitty from the coconut levy proceeds can partly be used to help make these proposals more financially feasible. With a lower CAMELS rating, Landbank may not be able to harness the funds it currently has, so this is an important consideration.
After the appropriate study has been completed, Landbank should closely follow the successful examples of agriculture banks in other countries. We can have an agriculture bank more responsive to the needs of our farmers, fisherfolk and other stakeholders.
