The policymaking Monetary Board yesterday reduced by 100 basis points the reserve requirements of small banks in an effort to release liquidity to the countryside and mitigate the effects of various lockdown measures among the small enterprises.
Benjamin Diokno, Bangko Sentral ng Pilipinas (BSP) governor and Monetary Board head, said effective July 31, 2020, the reserve requirements for thrift banks will be at 3 percent while rural and cooperative banks will be at 2 percent.
“The reduction is expected to increase lending capacity of these banks to support financing requirements of their micro-, small and medium enterprise (MSME) as well as rural community-based clients,” Diokno said.
He added the move will also help “lower intermediation costs and ease financial strain faced by these banks’ customers.”
Diokno said a reduction of 100 basis points on deposits/deposit substitute liabilities amounting to P1 trillion of small banks “will release estimated liquidity of P10 billion.”
He said the latest move is “part of the BSP’s omnibus package of reforms aimed at assisting the banking public with their liquidity requirements during the Corona Virus Disease 2019 (COVID-19) pandemic and supporting the transition towards a sustainable recovery during the post-crisis period.”
At the onset of the lockdown measures in March, the Monetary Board approved a 200-basis-point reduction in the reserve requirements of the country’s big banks and non-bank financial institutions with quasi-banking functions.
On March 30, 2020, the reserve requirement for universal and commercial banks was reduced to 12 percent.
Analysts estimate that for every 100-basis-point cut on big banks’ reserve requirements, over P100 billion is released to the economy.
Amid the pandemic, the BSP has deployed various measures to keep liquidity and credit flowing to households and businesses.
These include reduction in the overnight policy interest rate by a total of 175 basis points.
The BSP also implemented additional modes of compliance to encourage bank lending to MSMEs affected by the pandemic.
The BSP has also entered into a three-month repurchase agreement with the Bureau of the Treasury to provide bridge financing to the national government’s programs to counter the impact of COVID-19.
Measures to extend financial relief to borrowers, incentivize bank lending, promote continued access to financial services, and support continued delivery of financial services were also implemented.
