BSP cuts RRR for small banks

Published May 23, 2019, 12:00 AM

by manilabulletin_admin

By Lee C. Chipongian

The central bank’s Monetary Board reduced the reserve requirement ratio (RRR) imposed on thrift/savings banks by 200 basis points (bps) while a 100 bps cut was decided on the smaller rural and cooperative banks.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.(Bloomberg)
Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno.(Bloomberg)

After Thursday’s Monetary Board meeting, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the rate of RRR cuts and corresponding schedules will follow that of its earlier decision on the universal and commercial banks.

“For thrift banks, the RRR was cut by 200 bps, from eight percent to six percent, as follows: 100 bps effective May 31; 50 bps effective June 28; and 50 bps effective July 26,” said Diokno.

As for rural and cooperative banks, Diokno said they reduced the reserves ratio by a clean 100 bps, from five percent to four percent, and this will take effect also on May 31.

“The BSP will issue the necessary circular shortly,” he said. Rizal Commercial Banking Corp. analyst Michael L. Ricafort said the RRR reduction of 100 bps for thrift/savings, rural and cooperative banks will free up P11.1-billion liquidity into the financial system.

“Every one percentage point (or 100 bps) cut in RRR (will result in) additional peso liquidity into the financial system of P9.3 billion for thrift/savings banks and P1.8 billion for rural and cooperative banks … or a total of at least P11 billion combined for smaller banks,” said Ricafort in a commentary.

A two-percentage point cut on the RRR of thrift banks, which the BSP has decided on, will translate to P18.6 billion of fresh liquidity.

Last week, the Monetary Board has approved to reduce big banks’ RRR by a cumulative 200 bps in three stages: 100 bps on May 31; 50 bps on June 28; and 50 bps on July 26. By end-June, the universal and commercial banks’ RRR will be 16 percent from 18 percent.

The RRR cuts came after the Monetary Board on May eased key rates by 25 bps.
A 200 bps or two-percentage point reduction in big banks’ RRR releases about P180 billion-190 billion fresh funds in the financial system.

Combined with the smaller banks, the additional liquidity from the RRR cuts will amount to about P210 billion.