Banks’ loans as alternative compliance to the reserve requirement (RR) in the last month of its implementation reached P322.9 billion, based on initial reports.
The RR-compliant loans are part of BSP’s pandemic-related relief measures implemented since April 2020, but it has lapsed on Dec 29, 2022. The policy was first issued on April 24, 2020 for micro, small and medium enterprises (MSMEs) and May 29 of the same year for large enterprises.
Of the P322.9 billion, P254 are loans to MSMEs while P68.9 billion are borrowed by eligible large enterprises, based on preliminary data.
The central bank allowed banks to use loans to MSMEs and large enterprises that are not affiliated with conglomerates as alternative compliance with the RR rules. Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out, or where available through reserve-eligible government securities.
The aggregate limits for MSME loans is P300 billion and P425 billion for large enterprises.
The BSP had planned to reduce the RR ratio – currently at 12 percent for big banks -- before the expiration of the relief measure.
However, BSP Governor Felipe M. Medalla has said that reducing the RR ratio will confuse the market because the Monetary Board is still expected to raise the policy rate next month and in March. Since May 2022, the BSP has raised its key overnight rate by a cumulative 350 basis points (bps), bringing the key rate from two percent to 5.5 percent.
To address the excess liquidity that will be released after Dec. 29, the BSP allowed trust units of banks or stand-alone trust companies to buy BSP securities in the secondary market.
The move improves BSP’s ability to control money supply through their open market facilities in particular the issuance of the 28-day bills.
The BSP has been gradually exiting from its pandemic-related monetary accommodation and thus, recalibrating its liquidity-mopping up tools.