Bankers expressed full support to the latest move of the Bangko Sentral ng Pilipinas to cut again the reserve requirement ratios of universal, commercial and thrift banks by 1 percent or 100 basis points, saying the development will result in added liquidity into the financial system and boost economic growth.
Bankers Association of the Philippines president Cezar Consing, who is also the president and chief executive of the Bank of the Philippine Islands, told the media the RRR cut was a welcome move, adding the Philippines was now inching closer to aligning the reserve ratios with the other countries in the region.
“It also reflects the governor’s confidence in the strength of the financial system that we can now reduce our reserve ratios closer to the rest of the region. Even at the lower rates, it is still higher but I think the plan is gradually to bring it down to a single digit within his term,” Consing told reporters Thursday evening at the sidelines of the BPI’s inauguration of its new Makati main branch, the biggest in the Makati central business district.
The new branch aims to serve all client segments and will offer specialized banking services.
“The RRR cut is also going to make more available funds to be lent… that will increase the growth of lending that will foster economic growth,” Consing said, adding all banks would benefit from the lower reserve requirements.
He also expressed confidence that bank lending—which slowed a bit in August despite the previous RRR reduction—would pick up this time.
“… Lending slowed down a little bit partly because the budget was a little late. But my sense is that the government is trying very hard to catch up on the spending side. What happens is when the government spends more money specially on infra, the private sector tends to follow,” Consing said.
The national budget of P3.7 trillion this year was approved only in April by President Rodrigo Duterte after months of impasse between the two houses of Congress. As a result, the government operated on a reenacted budget the entire first quarter which caused the economy to expand by just 5.5 percent in the first half, way slower than the target range of 6 to 7 percent for the entire year.
ING Bank Manila senior economist Nicholas Mapa said the BSP’s successive RRR cut “should help ease chronic tightness in liquidity.”
“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 as Governor Diokno pledged to whittle down RRR to single digits before his term ends. We pencil in an additional 300 bps worth of cuts to RRR in 2020 alongside 50 bps worth of cuts to the policy rate (RRP) to address sagging growth momentum,” Mapa said.