Bank loans used as RRR compliance hit P6.4 B

Mid-sized and small banks have extended around P6.4 billion loans to micro, small and medium enterprises (MSMEs) as well as large companies, and booked these loans in compliance with their reserve requirement ratios, according to the Bangko Sentral ng Pilipinas (BSP).

“For the reserve week ending Feb. 15, thrift banks and rural and cooperative banks allocated an aggregate of P6.4 billion and P23.2 million loans to MSMEs and large enterprises, respectively, for compliance with the RRR,” the BSP said.

The loans accounted for 0.5 percent and 0.002 percent of total required reserves.

Thrift, rural and cooperative banks continued to use their outstanding loans to MSMEs and large enterprises for RRR compliance despite the lapse of the central bank’s temporary relief measure last year.

The relief measure, which expired in June 2023, allowed banks to count their loans to MSMEs and large companies as alternative compliance with the reserve requirements against deposit liabilities and deposit substitutes.

The BSP requires banks to keep a minimum amount of cash reserves with the central bank determined by the amount of deposit liabilities owed to customers.

“Meanwhile, thrift banks and rural and cooperative banks can still utilize their outstanding loans as alternative compliance with the RRR until such loans are fully paid, but not later than Dec. 31 2025, subject to certain conditions,” the BSP said.

The unwinding of the COVID-19 relief measure coincided with the reduction in the reserve requirement ratios on June 30 last year to facilitate the transition, supporting the banks’ continued compliance with the RRR and managing friction costs related to the policy adjustment.

In end-June 2023, the BSP delivered a major reduction in the level of deposit banks are required to keep with the central bank to single-digit levels.

The regulator slashed the RRR for universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions, by 250 basis points to 9.5 percent from 12 percent

Likewise, the RRR for digital banks was slashed by 200 basis points to six percent from eight percent, while the level of deposits mid-sized or thrift banks are required to keep with the BSP was lowered by 100 basis points to two percent from three percent.

That of small banks or rural and cooperative banks were also lowered by 100 basis points to one percent from two percent.