Bank loans used as RRR compliance down to P8 billion

MANILA, Philippines — Loans extended to micro, small and medium enterprises (MSMEs), as well as large companies, by mid-sized and small banks that are booked in compliance with their reserve requirements have declined to P8 billion, according to the Bangko Sentral ng Pilipinas (BSP).

Despite the lapse of the BSP’s relief measure on the use of new or re-financed loans to MSMEs and large enterprises as alternative compliance with the reserve requirements against deposit liabilities and deposit substitutes in end-June, thrift banks, as well as rural and cooperative banks, were allowed to use their outstanding loans to MSMEs and large enterprises as RRR compliance until Dec. 31, 2025.

The BSP said thrift banks, as well as rural and cooperative banks, allocated a total of P8 billion and P6.5 million loans to MSMEs and large enterprises, respectively, for the week ending Oct. 19.

According to the central bank, the loans accounted for 0.6 percent and 0.0005 percent of total required reserves.

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

Last year, the Philippine banking system allocated P263.1 billion loans to MSMEs for compliance with the RRR. This was equivalent to 15.9 percent of the required reserves.

Likewise, loans of banks to large enterprises used as compliance with the RRR amounted to P72.9 billion or 4.4 percent of the total required reserves for the same period.

The figures disbursed as of end-December last year were still within the caps imposed by the regulator: P300 billion for MSMEs and P425 billion for large companies.

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.

Last June 30, 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 the current level of 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, while that of small banks or rural and cooperative banks by 100 basis points to one percent from two percent.