BSP Cuts Reserve Requirements for Smaller Banks

Source: Regulation Asia Editors, Regulation Asia 2020-07-22

The reduction to lower the reserve requirement ratio for thrift, rural and cooperative banks will release an estimated $200mn into the economy.

The BSP (Bangko Sentral ng Pilipinas) has cut reserve requirements for thrift, rural and cooperative banks by 100 basis points, effective from 31 July, as part of efforts to boost banks’ lending capacity and enable consumers to continue accessing credit.

The reduction will bring the reserve requirement ratio to 3 percent for thrift banks, and 2 percent for rural and cooperative banks, releasing an estimated PHP 10 billion (USD 203 million) into the economy.

“The reduction is expected to increase the lending capacity of these banks to support financing requirements of their micro, small and medium enterprise as well as rural community-based clients,” said BSP governor Benjamin Diokno. “It will also help lower intermediation costs and ease the financial strain faced by these banks’ customers.”

Earlier this year, the BSP approved a 200 basis point reduction in the reserve requirements to 12 percent for universal and commercial banks and NBFIs with quasi-banking functions.

It has since also lowered the minimum liquidity ratio (MLR) requirement of smaller lenders, allowed banks to defer reclassifying loans as past due or non-performing, allowed lenders to draw from capital and liquidity buffers, amended the regulatory capital treatment of MSME loan exposures, and allowed banks to include loans granted to large enterprises as part of their compliance with reserve requirements.

Since March, the central bank has also cut interest rates by 175 basis points – including a surprise 50-basis-point cut lats month – to a record low of 2.25 percent, to help lower borrowing costs, mitigate downside risks to growth and boost market confidence.

“As you know, monetary policy works with a lag. Hence, we remain confident that credit to the private sector will pick up in the coming months with the gradual reopening of the economy,” Diokno said.

To date, an estimated PHP 1.3 trillion has been released into the financial system, equivalent to 6.4 percent of GDP.

Bangko Sentral ng Pilipinas

reserve requirements

BSP Cuts Reserve Requirements for Smaller Banks

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