Banks laud accelerated cuts in reserve requirement ratio

MANILA, Philippines — The accelerated reduction of the level of deposits banks are required to keep with the central bank is set to fuel stronger credit growth amid the monetary easing by the Bangko Sentral ng Pilipinas (BSP).

Cezar Consing, president and chief executive officer of Ayala-led Bank of the Philippine Islands (BPI), told reporters during the inauguration of the bank’s Makati main branch at the Makati Stock Exchange that the further lowering of the reserve requirement ratio (RRR) could translate to an acceleration in loan growth.

“I think what the central bank is doing makes sense. Other countries in the region allow their banks more room to lend,” Consing said.

The BSP has so far slashed the RRR by 600 basis points to 14 percent over the past two years.

The regulator slashed the RRR for big and mid-sized banks by 400 basis points and for small banks by 200 basis points this year as a follow up to the 200 basis points reduction in 2018.

Consing said the central bank has been more conservative when it comes to imposing stricter requirement due to the economic crisis in the 1980s.

“I think it made us more conservative. But I think now we’ve seen several years of growth we’ve seen a lot of structural reforms. I think now it’s a good time to align our RR more in line with the rest of the region,” the bank president added.

ING Bank Manila senior economist Nicholas Mapa said the BSP is likely to reduce the RRR by another 300 basis points next year alongside a 50 basis points cut in interest rates.

“Despite being reduced four times this year, RRR in the Philippines remains one of the highest in the region and we can expect further reductions to RRR in 2020,” Mapa said.

Despite a whopping P200 billion unleashed into the financial system, Mapa said bank lending remains anemic amidst the capital formation meltdown.

“Thus, successive rounds of RRR reductions will do little to insulate PHL growth momentum unless accompanied by the right tool to provide the economy a nice shot in the arm going into 2020,” Mapa said. 

Latest data from the central bank showed bank lending grew by 10.5 percent to P8.67 trillion in end-August from P7.84 trillion in end August last year, recovering after credit growth fell below double-digit level due to the tightening cycle last year.

BSP Governor Benjamin Diokno said the series of RRR reductions would boost credit growth and help bankroll the country’s growing economy.