MANILA, Philippines - 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,” said Joseph Omar O. Andaya, president of the Rural Bankers Association of the Philippines (RBAP), in a telephone interview yesterday.

Rural banks direct 50% of their loans to the agriculture sector.

Mr. Andaya said the RBAP board will meet tomorrow to finalize its request that measures the Bangko Sentral ng Pilipinas (BSP) extended to banks affected by tropical storm Ondoy be extended again, this time to banks whose clients have been affected by the dry spell.

Latest (BSP) data showed that rural banks had a non-performing loan ratio -- the proportion of bad loans to total loans -- of 10.58% as of September 2009, higher by 0.45% from a year earlier.

Data also showed that rural banks’ net income dipped by P5 million to P2.5 billion as of September 2009 due to lower income from their non-lending business.

The BSP’s tally showed there were 642 banks as of that month.

On Friday, Acting Agriculture Secretary Bernie G. Fondevilla told reporters that El Niño-related crop losses have reached P8.4 billion since January. The worst case scenario paints losses of up to P20 billion.

Data from the Philippine Atmospheric, Geophysical & Astronomical Services Administration, meanwhile, showed the 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 BSP excluded loans of borrowers in affected areas from the computation of past due ratios as long as these loans were restructured.

The regulator also cut to 1% from 5% the general loan loss provision for restructured loans of borrowers in affected areas.

For rural, cooperative and thrift banks, the central bank also suspended the penalty for reserve deficiencies as well as the penalty for ongoing rehabilitation programs.

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.

Mr. Andaya said if the dry spell worsens, then rural banks might cut back on lending to farmers.