The Bangko Sentral ng Pilipinas on Tuesday reduced the reserve requirement ratios of thrift, rural and cooperative banks by 100 basis points effective July 31 to inject more liquidity in the financial system amid the spread of COVID-19.
It said with the reduction, the reserve requirements of thrift banks and rural/cooperative banks would go down to 3 percent and 2 percent, respectively.
BSP Governor Benjamin Diokno said the “reduction of 1 percent on deposits/deposit substitute liabilities amounting to one trillion of thrift banks and rural/cooperative banks will release estimated liquidity of P10 billion.”
“The reduction is expected to increase lending capacity of these banks to support financing requirements of their micro-, small- and medium enterprise as well as rural community-based clients. It will also help lower intermediation costs and ease financial strain faced by these banks’ customers,” Diokno said in a statement.
The Monetary Board, the policy-making body of the BSP, earlier approved a 200-basis point reduction in the reserve requirements of universal/commercial banks and non-bank financial institutions with quasi-banking functions.
“This move is also part of the BSP’s omnibus package of reforms aimed at assisting the banking public with their liquidity requirements during the coronavirus disease 2019 pandemic and supporting the transition towards a sustainable recovery during the post- crisis period,” Diokno said.
Reserve requirement, also called cash reserve ratio, is a central bank regulation that sets the minimum fraction of customer deposits and notes that each bank should hold as reserves and could not be lent out.
Diokno said the country has a stable liquidity condition following the previous four successive cuts in the policy rate and the reduction in the reserve requirement ratios this year.
He said the latest data indicated that the liquidity measures implemented by the BSP since the onset of the pandemic continued to help stabilize money supply conditions.
Domestic liquidity or M3 expanded by 16.6 percent year-on-year to about P13.7 trillion in May, which was the fastest pace of domestic liquidity growth since February this year.
He said the continued stabilization of domestic liquidity conditions and the improvement in market sentiment has allowed the BSP to gradually reconfigure monetary operations. This would reinforce BSP’s prior liquidity-enhancing measures and facilitate their transmission to market interest rates, loan growth and eventually to overall economic activity, he said.
Diokno said the four successive cuts in the monetary policy rate (a total of 175 basis points), the reduction in the reserve requirement ratios, the temporary suspension of term deposit facility, the repurchase agreement with the national government, government securities purchases in the secondary market and the advance remittance of dividends to the government released up to P1.3 trillion into the financial system, equivalent to about 6.4 percent of the GDP.
The BSP implemented the measures during the enhanced community quarantine as part of the whole-of-government response to the pandemic.