By Lee C. Chipongian
The Bangko Sentral ng Pilipinas (BSP) has trimmed the reserve requirement ratio (RRR) for bonds by 100 basis points (bps) or by one percent to reduce banks’ intermediation costs.
The RRR for bonds issued by banks and quasi-banks will be three percent starting November 1.
“This rate is lower than the required reserves of other debt instruments issued by banks such as long-term negotiable certificates of time deposits which is currently at four percent,” the BSP said.
The central bank wants to encourage banks to source its liquidity requirements from the capital market, as well as to “tap the domestic bond market as part of its liquidity management.”
The adjustment in the required reserves for bonds complements the BSP’s earlier policy issuance streamlining the rules and requirements for the issuance of debt instruments by banks/quasi banks, said the BSP, and that the decision to reduce the RRR was based on its “commitment to contribute to deepening of the local debt market.”
“The lower bank reserves on bond issuances is expected to reduce the bond issuers’ intermediation cost that could be passed on to the holders of such securities,” said the BSP.
The BSP has already cut banks’ reservable deposit liabilities by 200 bps as of end-July and by 300 bps by the first week of November. The 300 bps RRR reduction is equivalent to about P300 billion worth of fresh liquidity.
The lower ratios will apply to all reservable liabilities but not bonds and mortgage/chattel mortgage certificates since the BSP has to first assess the impact of a reduction in the reserve requirements on these instruments such as bonds.
The coverage of reservable liabilities under the new BSP Charter has been under review because the definition of “deposit substitutes” has been changed. These are financial instruments to be considered as deposit substitutes based on the expanded provision.
In the old and new version of the BSP Charter, deposit substitutes is defined as an “alternative form of obtaining funds from the public, other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower’s own account, for the purpose of relending or purchasing of receivables and other obligations.”