The Bangko Sentral ng Pilipinas (BSP) announced on Friday, Feb. 21 that it will reduce the reserve requirement ratios (RRRs) for big banks by 200 basis points (bps). 

This reduction will lower the RRRs for universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions (NBQBs), to five percent from seven percent.

Meanwhile, the RRR for digital banks will be reduced to 2.5 percent from four percent as the central bank lowers the ratio by 150 basis points. Additionally, the ratio for thrift banks will be cut by 100 basis points, bringing it down to zero percent.

According to the BSP, “the new ratios shall take effect on the reserve week beginning on 28 March 2025 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs.”
The BSP’s goal, it said, is to help banks “to channel their funds more effectively toward productive loans and investments.”

Reducing the ratios “will lessen frictions that hinder” the flow of money in the economy.

“Banks have the option to increase their loans, investments in bonds/fixed income securities, equities, forex, and other assets,” said Michael Ricafort, chief economist at Rizal Commercial Banking Corp. (RCBC). 

Ricafort noted the planned cut would infuse approximately ₱320 billion to ₱330 billion into the banking system. These “would be deployed to more productive investment outlets that generate earnings or profits instead of being idle as required reserves.”

He asserted that this shift is “good” as it is expected to drive higher demand and prices for the banks’ investments.

“Thus, more loanable funds by large banks would lead to more lending activities at lower intermediation costs that also reduces borrowing costs, thereby would lead to more investments (new and expansion projects), more employment, greater trade, and more business or economic activities. All of which would lead to faster economic growth,” Ricafort said.