THE CENTRAL BANK has trimmed the minimum liquidity ratio (MLR) requirement of smaller lenders until the year’s end in a move to boost their stash of money amid the impact of the coronavirus disease 2019 (COVID-19) and the enhanced community quarantine (ECQ) on the industry.

“The BSP recognizes that the COVID-19 outbreak and community quarantine implemented to combat the spread of the disease has elevated the liquidity risk exposures of banks arising primarily from higher demand for funds by depositors, borrowers or both,” Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said in a memorandum dated April 7.

The MLR requirement of standalone thrift, rural and cooperative banks now stands at 16% from the 20% prescribed by the Manual of Regulations for Banks effective until the end of the year, unless revoked by the BSP.

“Owing to the BSP’s adoption of liquidity standards, banks are largely seen to have entered this stress situation in a strong liquidity position, with buffers ready to absorb the recent and coming liquidity shocks,” Mr. Diokno said.

The central bank chief said lenders that will see their MLR drop below 16% due to a shortfall in the stock of eligible liquid assets for three banking days within any two-week rolling calendar period should notify the central bank immediately.

The 20% MLR requirement of standalone smaller lenders has been in place since 2019. The MLR is computed as the percentage of the lenders’ eligible stock of liquid assets versus its total qualifying liabilities.

On the other hand, thrift, rural and cooperative banks part of a bigger firm have been subjected to a minimum liquidity coverage ratio of 100% since 2019.

For Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort, the BSP’s move to reduce the MLR of smaller standalone banks will boost liquidity for rural areas, which most of these lenders service.

“This is a de facto infusion of more peso funds inuring to the benefit of the depositors and borrowers of these banks in terms of greater amount of cash infused into the economy as well especially in rural areas…to better deal with any economic fallout largely brought about by the unprecedented COVID-19 pandemic,” Mr. Ricafort said in an e-mail.

The BSP earlier reduced the reserve requirement ratio (RRR) of big banks by 200 basis points (bps) to 12% effective last Friday to boost liquidity in the market amid the lockdown.

The central bank said it will look at lowering the RRRs of smaller lenders as the Monetary Board has authorized Mr. Diokno to cut reserve ratios by a total of 400 bps for 2020.

The reserve ratios of thrift and rural banks are at four percent and three percent, respectively.

Amid the extension of the Luzon lockdown to April 30, BSP Deputy Governor Chuchi G. Fonacier said the banking industry continues to be stable, with liquidity in the financial system still sufficient.

“The banks were able to build up buffers even before the ECQ. So, the industry would be able to handle the extended lockdown,” Ms. Fonacier said in a text message. — L.W.T. Noble