The central bank is reviewing the possible reduction of thrift banks’ minimum liquidity ratio (MLR) of 16 percent to 14 percent.

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Tuesday, Oct. 12, that they are looking into the relaxation of thrift banks’ MLR which is a liquidity buffer.

Thrift banks are requesting for a lower MLR of 14 percent, however, the current ratio of 16 percent is only up to December 31, 2021. Unless extended by the BSP or the appeal for a lower MLR, is approved come January next year, the MLR will revert back to 20 percent.

“The BSP will continue to monitor compliance with the MLR to check if there is a need to adjust or calibrate the requirement,” said Diokno during the Chamber of Thrift Banks’ (CTB) virtual convention on Oct. 12.

Diokno said the BSP reduced the MLR from 20 percent to 16 percent until end this year to allow covered banks to “meet the liquidity requirement of their clients.”

As of end-June this year, the average MLR of stand-alone thrift banks is at 36.5 percent, higher than the 16 percent minimum. Liquidity buffers or liquid assets are used in periods of stress by stand-alone thrift banks, rural banks, and cooperative banks.

The BSP has likewise reduced thrift banks’ reserve requirement ratio from eight percent to three percent through a series of rate reductions in 2019 and 2020.

Since last year, Diokno has expressed his openness to further relax the thrift banks’ MLR. The review depends on prevailing market conditions and thrift banks’ capacity to manage their liquidity risk exposures.

The BSP’s 16 percent MLR for stand-alone thrift, rural and cooperative banks has been in place since 2020 in the early months of the pandemic.

Stand-alone thrift banks, rural and cooperative banks may draw on their stock of liquid assets to meet liquidity demands to respond to the current circumstances.

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

“We are optimistic that the thrift banking industry is well-equipped to withstand the risks posed by the COVID-19 crisis (and that) recovery in the country’s macroeconomy and the industry’s financial performance will serve as a strong foundation for thrift banks in charting their course under the new economy,” said Diokno during the CTB webinar.

As of end-July, thrift banks’ assets reached P1.2 trillion, up 6.8 percent year-on-year. Its deposit liabilities also grew by 7.9 percent which Diokno said is “highly indicative of the public’s continued trust and confidence in the industry.”

Thrift banks’ risk-based capital adequacy ratio stood at 18.8 percent as of end June while its cumulative net income went up by 15.3 percent year-on-year to P6.6 billion.

There are 47 thrift banks in the country, operating a network of 2,744 branches.

“Amid the pandemic, the thrift banking industry remained sound and stable as shown by sustained growth in assets and deposits, strong capital position, adequate liquidity buffers, and profitable operations,” said Diokno.