By Luisa Maria Jacinta C. Jocson, Reporter
THE BANGKO SENTRAL ng Pilipinas (BSP) plans to scale back the reserve requirement ratio (RRR) “substantially” this 12 months, its high official stated.
“We’re contemplating it. We’ve mentioned the timing of it. I might say it’s going to occur this 12 months,” BSP Governor Eli M. Remolona, Jr. stated in a press chat on Wednesday.
“We’ll cut back reserve necessities considerably this 12 months after which there could also be additional reductions by subsequent 12 months,” he added.
The RRR is the portion of reserves that banks should maintain onto quite than lending out.
The BSP decreased the ratio for giant banks and nonbank monetary establishments with quasi-banking features by 250 bps to 9.5% in June 2023.
It additionally lowered the ratio for digital banks by 200 bps to six% and by 100 bps for thrift banks, and rural and cooperative banks to 2% and 1%, respectively.
The central financial institution has since introduced down the RRR for common and industrial banks to a single-digit degree from a excessive of 20% in 2018.
“The banks need a discount of the reserve requirement they usually’re saying ‘when you do cut back it, we’ll do that different factor for you,’ cut back transaction prices on funds, for instance,” Mr. Remolona stated.
“We’re attempting to handle that. However the thought is to scale back the reserve necessities in a considerable manner,” he added.
The BSP governor earlier stated that they’re eyeing to carry down the RRR to as little as 5%.
In the meantime, Mr. Remolona stated that the RRR cuts’ affect on the financial system won’t be rapid.
“Our transmission mechanism has lengthy lags. That’s partly as a result of the markets are usually not deep and liquid. We take account of these lags,” he stated.
“On the identical time, we’re attempting to enhance the liquidity of the markets to shorten these lags. However that’s an effort that may take a while.”
BSP Assistant Governor Zeno R. Abenoja stated that slashing the RRR may spur lending actions and financial development.
“We hope extra liquidity will likely be deployed to assist broaden productive financial actions. Nevertheless, that may take time,” he stated.
“So, a few of it is going to be deployed by banks in varied financial markets, together with authorities securities, fairness, however a few of it could nonetheless reside of their accounts, together with depositing it again to the BSP.”
The RRR cuts in June final 12 months coincided with the expiration of the BSP’s pandemic reduction measures, which allowed banks to rely their lending to small companies as a part of their compliance with the reserve requirement for deposit liabilities and substitutes.
“By way of liquidity, the reserves for the reserve requirement are on our stability sheet on the identical facet, on the liabilities facet. So, if we lower the reserve requirement, that half will go down and we need to compensate for that,” Mr. Remolona stated.
“So, that’s extra liquidity for the financial institution system and we need to compensate for that by absorbing again a few of that liquidity, which can go into another a part of our stability sheet,” he added.
The BSP chief earlier stated that the Philippines’ present RRR is among the many highest in Asia. He additionally stated reserve necessities “drive a wedge” between deposit charges and lending charges.
When a financial institution is required to carry a decrease reserve ratio, it has extra funds to lend to debtors. This will increase the financial institution’s lending capability, impacting its means to help financial development and meet the credit score wants of people and companies.
