BSP open to lower thrift banks’ minimum liquidity ratio

Published May 5, 2022, 4:33 PM

by Lee C. Chipongian

The thrift banking sector may still get its requested lower minimum liquidity ratio (MLR) or less than the current 16 percent as the Bangko Sentral ng Pilipinas’ (BSP) kept its review open.

BSP Governor Benjamin E. Diokno on Thursday, May 5, said that the MLR of stand-alone thrift banks continue to be above the 20 percent benchmark at 37.3 percent as of end January this year. This was more than double of the current 16 percent MLR requirement.

BSP Governor Benjamin E. Diokno

The central bank reduced the MLR from 20 percent to 16 percent in 2020 as part of relief measures due to the pandemic. However, thrift banks want this ratio further reduced to 14 percent.

“The liquidity ratio of stand-alone thrift banks have remained well above the 20-percent minimum threshhold,” said Diokno in an online press briefing.

“A review will be undertaken as necessary taking into consideration the liquidity requirements and the economic condition of the country,” he also said.

The 16 percent MLR, as a pandemic relief response, will remain in place until end 2022.

Thrift banks have been requesting for a lower MLR of 14 percent since 2020. If the BSP will decide to not extend the relief measure by end 2022, the MLR will revert back to 20 percent.

Liquidity buffers or liquid assets are used in periods of stress by stand-alone thrift banks, rural banks, and cooperative banks. Stand-alone thrift banks may draw on their stock of liquid assets to meet liquidity demands to respond to the current conditions.

During his media presentation on Thursday, Diokno said thrift banks continue to be stable and resilient with “robust” capitalization and liquidity, as well as improving asset quality. The industry is also able to sustain financing of households, micro, small and medium enterprises (MSMEs), and the agri-agra sector.

As of end February, thrift banks released some P209.8 billion in loans for household consumption, or 40.8 percent of the sector’s total loans of P514 billion. Its non-performing loans (NPLs), meantime, has been improving since September 2021. In February, its NPLs against their total loans stood at 8.9 percent.

Loans to MSMEs and the agri-agra sector was at P61.3 billion and P22 billion, respectively, in the first two months of 2022. As for the use of MSME loans as alternative compliance with reserve requirements, thrift banks have allocated an average of P20.8 billion in loans to MSMEs. This was 1.3 percent of the total required reserves for the reserve week ending April 21.

“The BSP acknowledges the role of the thrift banking industry in promoting inclusive growth and in serving the needs of the MSME and agri-agra sectors.

In line with this, the BSP is pursuing a reform agenda for 2022 that aims to strengthen BSP-supervised financial institutions by further enhancing corporate governance, risk management and operational resilience,” said Diokno on Thursday.

Diokno added that the BSP will rely on digital technologies to “further bolster our supervisory and surveillance tools; pursue vigorous cybersecurity measures to effectively manage attendant risks and protect the public interest; and sustain our initiatives to promote sustainable finance.”

As of end February, thrift banks’ assets reached P872.8 billion but it was lower than the P1.1 trillion recorded same time in 2021. Its capital adequacy ratio (CAR) stood at 19.3 percent at end-September 2021 which was well-above the BSP’s 10 percent minimum requirement. The CAR was also higher than the 17.5 percent same period in 2020.

Profit-wise, thrift banks continue to be profitable. As of end 2021, the sector posted combined net profits of P21.8 billion, up 30 percent year-on-year.

“We are confident that (BSP) reform initiatives will support the thrift banking industry’s viability as the country heads toward a sustainable and digital new economy,” said Diokno.