THE Bangko Sentral ng Pilipinas (BSP) yesterday reduced the required amount of money big banks must hold as reserves “to encourage banks to continue lending to both retail and corporate sectors.”
Beginning March 30, 2020, the reserve requirement (RR) for universal and commercial banks, which currently stands at 14 percent, will be reduced by 200 basis points to 12 percent.
Benjamin Diokno, BSP governor, said the move takes into consideration the impact of COVID-19 on domestic liquidity.
“The RR cut is intended to calm the markets and to encourage banks to continue lending to both retail and corporate sectors. This will ensure sufficient domestic liquidity in support of economic activity amidst this global pandemic due to the Coronavirus Disease (COVID-19),” Diokno said.
Analysts estimate that for every 100 basis point cut, over P100 billion is released to the economy.
Diokno said potential cuts on the reserve requirements for other banks and non-bank financial institutions will also be explored.
“The BSP will have to assess the impact of COVID-19 on the broader economy,” Diokno said.
He added the behavior of banks, particularly their capacity to absorb, invest and lend the freed-up liquidity, will likewise be a determining factor for further adjustments.
In a special Monetary Board (MB) meeting on Monday, the MB authorized Diokno to reduce the RR of BSP-supervised financial institutions of up to a maximum of 400 basis points for 2020.
“The authority given to the Governor to adjust the RR allows the BSP flexibility to promptly address any possible liquidity strain in the industry,” the MB said.
The reduction of big banks’ reserve requirement is the latest move by the MB to reduce the negative effects of COVID-19 to the economy.
Last Thursday, the MB cut the interest rate on the BSP’s overnight reverse repurchase (RRP) facility by 50 basis points to 3.25 percent.
The interest rates on the overnight lending and deposit facilities were also reduced to 3.75 percent and 2.75 percent, respectively.
In addition, the MB authorized the time-bound, temporary relaxation of BSP regulations on compliance reporting by banks, calculation of penalties on required reserves, and single borrower limits.
The MB also approved a temporary reduction in the term spread on rediscounting loans relative to the overnight lending rate to zero.
