Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said it might be some time before they take back COVID-19 relief measures such as liquidity support and regulatory reprieve granted to banks and only if a remedy is found for the coronavirus.
“The BSP will continue with our evidence-based, data-driven approach to policy making, including deciding when to scale back pandemic support measures,” said Diokno during his virtual “GBED Talks” Thursday.
Diokno said the BSP is responsible for ensuring that there is sufficient liquidity in the financial system and to prevent the “tightening of financial conditions and financial disintermediation while keeping a close watch on inflation developments.”
“We fully recognize that until such time when economic activities can resume full operations (and that effective treatment against COVID-19 has been found) many of our fiscal and monetary stimulus measures may still be needed to support productivity” and ensure economic growth, according to the BSP chief. As such, he reiterated that “timing is critical to the exit strategy” and they will know when to undo relief measures based on relevant data on inflation, as well as bank capital and liquidity.
In timing this exit strategy, a BSP paper provided a four-phase macroeconomic policy response, and currently the country is on Phase 2 which is “managing through the recession”. Since economic activities are still limited, the BSP continue to have reasons to ensure liquidity support and regulatory relief measures but "subject to regular review" while there is also room for additional monetary and fiscal support.
“Under Phase 2, partial operations of some economic sectors are allowed while strictly observing health protocols. Fiscal and monetary stimulus packages as well as regulatory and operational forbearance measures are continuously being undertaken,” said Diokno. Phase 3 is when there is an effective remedy to reduce COVID-19 infections and where all sectors in the economy can be allowed to fully operate, he explained. “Fiscal and monetary stimulus measures may still be needed to support growth (but) nonetheless, unwinding of some of the temporary measures takes place.”
For now, one of the relief measures granted by BSP to the banks is allowing the lending to the micro, small and medium enterprises (MSMEs) as well as to qualified large enterprises as alternative compliance to the reserve requirement ratio (RRR). They did this because Diokno believed that lending to the vulnerable sectors such as the MSMEs, will speed up economic recovery.
Diokno has noted a positive response on taking advantage of lending to MSMEs as alternative compliance, mostly rural banks. He said the latest data show that there are 88 banks that have used this relief measure, releasing about P44.42 billion loans to MSMEs, up from a previous number of P9.9 billion by 55 banks.
Since the inclusion of large enterprises came in later, Diokno said there is a limited take up so far as an alternative mode of compliance, and only 14 banks released about P534 million in loans to qualified large enterprises.
Besides adopting a policy where new loans to MSMEs and qualified large enterprises are recognized as alternative compliance with the RRR rule until December 2021, the BSP also reduced the credit risk weights of loans granted to MSMEs that are current in status to 50 percent from 75 percent for qualified MSME portfolio and 100 percent for non-qualified MSME portfolio.
In the meantime, the alternative compliance with the RRR was first granted to the use of loans to MSMEs (approved last April 24), and later expanded beginning on May 29 to include loans to large enterprises but these big firms must not be part of a conglomerate, has an asset size of more than P100 million, employing more than 200.
Diokno said they need to assess the impact of the pandemic on their supervised banks and other financial institutions, and the BSP also needs to know the extent of relief of passed by banks to clients or customers.
“A better understanding of the true state of the health of the banking system will allow us to properly evaluate weather further easing of relief measures is warranted,” he said.
The BSP has began a comprehensive, baseline survey of all banks and non-banks to evaluate how else it could help the financial sector. The data they will gather will assess the financial and operational impact of the COVID-19 pandemic on banks, particularly on asset quality, liquidity position, profitability, capital position, as well as the impact of increased digital business.