BSP extends lower minimum liquidity ratio for small banks

Published December 3, 2020, 7:03 PM

by Lee C. Chipongian

The 16 percent minimum liquidity ratio (MLR) for stand-alone thrift, rural and cooperative banks has been extended until December 31, 2021, a year longer from its previous ending date of end-2020, based on a Bangko Sentral ng Pilipinas (BSP) memorandum.

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

The central bank’s Memorandum No. M-2020-085 extended the effectivity of the MLR temporary reduction by an additional one year. The BSP said this is “in recognition of the continuing demand for liquidity faced by banks due to the COVID-19 pandemic.”

“The extension also aims to provide covered banks with sustained capacity to support the economy and expand their lending activities,” said BSP Governor Benjamin E. Diokno in the memo, signed last Tuesday. During this period, stand-alone thrift banks, rural banks, and cooperative banks may draw on their stock of liquid assets to meet liquidity demands to respond to the current circumstances, it added.

The MLR is a liquidity buffer that will revert back to 20 percent by end-2021. Liquidity buffers or liquid assets are used in periods of stress by stand-alone thrift banks, rural banks, and cooperative banks.

There are continuing requests from thrift banks to further relax the MLR from the current 16 percent.

The small banks have different minimum liquidity rules depending on whether they are subsidiaries of universal/commercial banks or not.