BSP sees P28B in fresh liquidity from deposit substitute tweak

BANGKO SENTRAL ng Pilipinas (BSP) Governor Benjamin E. Diokno is positive that the change in the definition of deposit substitutes to exclude interbank borrowings so they are not subject to reserve requirements will help boost liquidity in the financial system.

“Ang implication ’nun (Its implication) is I think we released about P28 billion into the financial system,” Mr. Diokno told reporters on the sidelines of the Financial Education Stakeholders’ Expo held at SMX Convention Center in Pasay on Monday.

“Again, we will see how the financial market will respond to that,” he added.

The central bank last week said its policy-making Monetary Board adopted the new definition for deposit substitutes under Section 95 of its charter that has been amended by Republic Act (RA) 11211 or the New Central Bank Act enacted in February.

With RA 11211, the same provision now defines that the phrase “obtaining funds from the public” means those that involve borrowing from at least 20 lenders at any one time that are individuals or companies which are not financial intermediaries.

“This means that borrowings from banks, quasi-banks and other financial intermediaries are no longer considered deposit substitutes which are subject to reserve requirements,” the BSP said a statement last week, citing as examples interbank borrowings, repurchase agreements with financial counter-parties, as well as bonds issued to financial intermediaries.”

Sought for comment, the top official of the country’s largest bank said the BSP’s move to exclude these borrowings from its reserve requirements is positive for the economy.

“I’m quite positive with that move because I think the economy needs the liquidity now to support growth, so that will be a big help,” BDO Unibank, Inc. President Nestor V. Tan told reporters on the sidelines of an event by the Management Association of the Philippines (MAP) held in Makati on Monday, where he was named MAP Management Man of the Year 2019.

Latest BSP data showed domestic liquidity picked up 7.7% year on year in September to P12 trillion, compared to the 6.3% growth recorded in August.

On the other hand, bank lending was still flat in September despite the BSP’s moves to ease policy earlier this year. Data showed outstanding loans of universal and commercial banks increased 10.5% year on year in September, an expansion unchanged compared to the August print. Inclusive of reverse repurchase agreements, bank lending grew 10.2% in September, slightly picking up from the 10% seen the previous month.

Mr. Tan said he is bullish that loan growth will pick up in the remaining months of the year.

“Lending growth is actually based on demand, and I think because of budget delays, there’s just been a little bit of slowdown in loan activity. But I do believe it will pick up towards the latter part of this year, right about this time, and then going to next year,” he said.

The BSP is set to release liquidity and bank lending data for October this Friday, Nov. 29.

The reserve requirement ratio (RRR) of universal and commercial banks now stands at 15% following the effectivity of the 100-basis-point (bp) cut in RRR announced in September. Likewise, the RRR of thrift banks is now at five percent, while that for rural banks stands at three percent.

The BSP announced last month that the reserve ratio of universal, commercial and thrift banks will be slashed by another 100 bps effective December, bringing total reductions to their reserve ratios for this year to 400 bps. This cut will also apply to the reserve ratio of nonbank financial institutions with quasi-banking functions (NBQBs).

This will bring the reserve ratio of universal and commercial lenders to 14% by December, while the RRR of thrift banks will stand at four percent. On the other hand, the reserve ratio of NBQBs will be cut to 14% next month.

Meanwhile, the BSP’s Monetary Board this month kept its benchmark interest rates for the overnight reverse repurchase, overnight deposit and lending facilities at four percent, 3.5% and 4.5%, respectively.

The move was widely expected after Mr. Diokno hinted in separate television interviews that the central bank is “likely done” with rate cuts for the year.

The BSP has cut rates by a total of 75 bps this year, partially dialling back the 175 bps in hikes it fired off last year in the face of multi-year high inflation. — LWTN