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Philippines: BSP targets 1-digit bank reserve ratio
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) is committed to bring down the level of deposits that big banks should maintain by the fourth quarter.
BSP Governor Benjamin Diokno yesterday said the central bank would pursue the reduction of the reserve requirement ratio (RRR) of big banks to within single digit in the fourth quarter.
Diokno, who is set to become finance secretary of the next administration, said the BSP would cut the ratio at least a month before it lifts the alternative compliance to the RRR.
The BSP has allowed banks to use loans for micro, small and medium enterprises (MSMEs) as an alternative compliance to the RRR. Based on records, banks have issued an average of P186.6 billion in loans for MSMEs, amounting to around 12 percent of their required reserves as of May 24.
“Our preference is that the RRR cut will come maybe in a month or two before we withdraw the assistance to the MSMEs. Remember, there is an alternative compliance,” Diokno said.
“As we withdraw that, we will probably consider the RRR cut, so this program I think (will come) sometime in the fourth quarter,” he said.
Diokno said loans released by big banks to MSMEs have reached P334.8 billion as of April, as the BSP sustains its regulatory relief to support enterprises recover from the pandemic.
Banks can use their loan releases to MSMEs and corporations affected by the pandemic as an alternative compliance to the RRR in line with the BSP’s policy.
The program – supposed to lapse in 2021 but was extended to this year—gives banks the time they need to study the risks of granting loans to firms trying to recoup their losses. It also paved the way for borrowers to negotiate with their creditors in seeking fresh loans or restructuring old ones.
The BSP demands banks to keep a minimum level of cash reserves with the central bank based on the amount of deposit liabilities they owe to clients. Diokno committed to trim the RRR of big banks to single digit by 2023, from 23 percent in 2018.
At present, the volume of reserves that commercial and universal banks must hold on to instead of lending out to borrowers or investing somewhere else stands at 12 percent.
On the other hand, the RRRs for medium-scale and small-sized banks are pegged at three percent and two percent, respectively.
Source: https://www.philstar.com/business/2022/06/14/2188130/bsp-targets-1-digit-bank-reserve-ratio