BSP to provide relief measure for smaller banks in Philippines

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The Bangko Sentral ng Pilipinas (BSP) is giving mid-sized and small banks consideration with the lifting of a regulatory relief that allows the industry to count loans to micro, small and medium enterprises (MSMEs) as compliance to reserve requirement.

BSP Governor Felipe Medalla said the regulator is looking at compensating thrift, rural and commercial banks by allowing them to still use loans extended to MSMEs - part of the level of deposits banks are required to keep with the central bank - mature even with the lapse of the regulatory relief on June 30.

'There may be provisions for small banks to allow it to go on until the loans have matured,' Medalla said.

Medalla told reporters that the unwinding of the regulatory relief would require mid-sized and small banks to allocate more funds to comply with the reserve requirement ratio (RRR).

So as not to have an abrupt impact on the sector, the BSP chief said the central bank would continue to count the remaining unpaid principal of MSME loans to be part of RRR compliance.

'But we will give that most likely to small banks, maybe thrift banks and rural banks,' he added.

During the height of the COVID-19 pandemic, the BSP did the heavy lifting by freeing up move than P2 trillion worth of liquidity in the financial system through an easing cycle that cut key policy rates by 200 basis points to an all-time low of two percent, the reduction of RRR by 200 basis points to 12 percent for big banks, as well as regulatory relief measures including the use of loans to MSMEs and large enterprises as compliance with the reserve requirement.

'Clearly, the economy has recovered from the pandemic. So those measures are therefore no longer necessary,' Medalla added.

As the lifting of the regulatory relief measure pertaining to RRR would require the industry to set aside more funds, the BSP is looking at lowering the level of deposits banks are required to keep with the central bank.