BSP SQUARELY RESPONDS TO COVID 19 CRISIS
The Bangko Sentral ng Pilipinas (BSP) has served as a guardian of financial stability amid the COVID-19 crisis. It implemented a long list of response measures meant to assist BSP-supervised financial institutions (BSFIs), so they may in turn serve households and business enterprises affected by the pandemic.
TO SHORE UP MARKET CONFIDENCE AND ENSURE ADEQUATE LIQUIDITY AND CREDIT
The BSP implemented a series of cuts in its key policy rate by a cumulative 200 basis points beginning February 2020. Interest rates on the overnight deposit and lending facilities were likewise reduced accordingly. This made the BSP among the first responders to COVID-19, which was officially declared a pandemic by the World Health Organization in March 2020.
The BSP also reduced the reserve requirement ratio (RRR), by 200 basis points for universal and commercial banks and by 100 bps for thrift banks (TBs) and rural/cooperative banks (R/CBs).
The interest rate cut was meant to spur credit activities, while the cut in the reserve requirement ratio increased the amount of liquidity available for lending.
TO EXTEND FINANCIAL RELIEF TO BORROWERS
The BSP extended regulatory relief to BSFIs, which enabled them to grant equivalent financial relief to borrowers, such as in the form of flexible and favorable lending terms or loan restructuring.
The regulatory relief measures for BSFIs included the temporary exclusion of loans of affected borrowers from the past due and non-performing classification. BSP also allowed banks to stagger the booking of credit losses from loans extended to crisis-affected borrowers. Moreover, the BSP extended payment grace period and loan restructuring to banks with outstanding rediscounting obligations.
TO INCENTIVIZE LENDING
To incentivize lending, the BSP reduced credit risk weights of loans to micro, small, and medium enterprises (MSMEs); allowed peso-denominated loans to MSMEs and certain large enterprises as forms of alternative compliance with the reserve requirements against deposits and deposit substitutes; temporarily raised the single borrower’s limit (SBL); and deferred the implementation of the enhanced capital rules, while reducing the minimum liquidity requirements for stand-alone TBs and R/CBs. Banks were also allowed to utilize capital and liquidity buffers during the crisis
TO PROMOTE CONTINUED ACCESS TO FINANCIAL SERVICES
To ensure that the Filipino people continue to have uninterrupted access to basic and essential financial services and products during the crisis, the BSP implemented relevant measures. These include provision of incentives for BSFIs to extend financial relief to their borrowers and promotion of digital platforms for the delivery of financial services.
Moreover, the BSP rolled out policies meant to ensure access to formal financing channels by retail clients, including those badly affected by community quarantine arrangements. The use of information technology in financial transactions has been actively promoted.
The BSP also relaxed the knowyour-customer (KYC) rules to facilitate access of the public to formal financing channels. It urged BSFIs to suspend fees and charges on the use of online banking platforms, including InstaPay, PesoNet, and interbank ATM transactions. Meanwhile, the BSP waived the license fees on the provision of Advanced Electronic Payments and Financial Services (EPFS), as well as transaction fees charged for fund transfers made with PhilPaSS.
TO COMPLEMENT THE NATIONAL GOVERNMENT’S BROAD-BASED HEALTH AND FISCAL PROGRAMS THROUGH EXTRAORDINARY LIQUIDITY MEASURES
To help the National Government bridge its financing gap as it spends on COVID-19 response, the BSP on 24 March 2020 started purchasing government securities in the secondary market.
The BSP also remitted P20 billion in advanced dividends to the National Government to further boost the latter’s resources for crisis response.
In addition, the BSP extended provisional advances to the National Government, the latest of which was the P300 billion that was paid in full on 20 May 2022, ahead of the 11 June 2022 deadline.
Aided in part by the COVID-19 response measures of the BSP, the impact of the crisis to the country’s banking system has been manageable. Banks have remained sound and stable and, therefore, able to support economic recovery and growth.
Against the backdrop of COVID-response measures by the BSP, which complemented the National Government’s own crisis response initiatives, the Philippine economy has bounced back from the crisis.
Following the pandemic-driven recession in 2020, the Philippine economy grew by 5.7 percent in 2021 and further by 8.3 percent in the first quarter of 2022.