By Luz Wendy T. Noble, Reporter

THE Bangko Sentral ng Pilipinas (BSP) on Tuesday reduced the reserve requirement ratio (RRR) of thrift and rural banks in order to boost lending amid the crisis.

BSP Governor Benjamin E. Diokno said the 100-basis-point (bp) reduction in the RRR of small banks will take effect on July 31.

“Reduction of 1% on deposits/deposit substitute liabilities amounting to P1 trillion of TBs (thrift banks) and RCBs (rural and cooperative banks) will release estimated liquidity of P10 billion,” he told reporters in a Viber message.

The move will bring down the reserve requirement for thrift banks to three percent, while those for rural and cooperative lenders will be at two percent.

“The reduction is expected to increase lending capacity of these banks to support financing requirements of their micro, small and medium enterprise (MSME) as well as rural community-based clients,” BSP said in a statement.

The central bank added the reduction in reserve requirements will bring down intermediation costs and ease the financial strain faced by bank clients.

“This move is also part of the BSP’s omnibus package of reforms aimed at assisting the banking public with their liquidity requirements during the coronavirus disease 2019 pandemic and supporting the transition towards a sustainable recovery during the post-crisis period,” the BSP said.

The latest reduction followed the central bank’s move to trim the RRR for universal and commercial banks by 200 bps to 12% in April, in a bid to provide liquidity boost during the lockdown.

The Monetary Board is authorized to slash banks’ reserve requirements by up to 400 bps this year.

Aside from the RRR reduction, the BSP rolled out other regulatory relief measures for smaller lenders such as the allowance of alternate reserve compliance in the form of lending to MSMEs and the reduction of the minimum liquidity ratio for stand-alone thrift and rural banks by 400 bps to 16%.

Earlier, Mr. Diokno has said the BSP’s liquidity-inducing measures have released P1.3 trillion into the financial system which is equivalent to 6.4% of the country’s gross domestic product.

Data from the BSP showed domestic liquidity in May quickened to 16.6% year on year from the 16.2% in April. However, outstanding loans disbursed by universal and commercial banks rose 11.3% slower than the 12.7% print in April.

Rural Bankers Association of the Philippines President Elizabeth C. Timbol earlier told BusinessWorld that rural lenders have seen an uptick in disbursement of credits to agriculture and health-related businesses.

ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said the RRR cut will be another avenue of support for small businesses and households facing economic challenges.

“The additional liquidity can hopefully be channeled to SMEs and households in need of funds. From a system perspective, the P10 billion is dwarfed by the P1.3 trillion in excess liquidity,” Mr. Mapa said in an e-mail.

The timing of the next RRR cut will be hard to tell for now, according to UnionBank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion.

“There is initial guidance, but when the actual cut will happen is largely random and cannot be immediately determined,” Mr. Asuncion said in an e-mail.

He said the latest reductions have placed the reserve requirement for smaller lenders at “appropriate levels” already, leaving room to further cut the RRR of universal and commercial banks (U/KBs) as well as nonbank financial institutions (NBFIs) with quasi-banking functions.

After the BSP’s 100-bp cut for RRR which took effect in December last year applicable for quasi-banks, their reserve requirement is currently at 14%.

“This further cut down the road, say Q4 2020, will benefit [U/KBs] and NBFIs, as the BSP tracks to help increase market liquidity,” Mr. Asuncion said.

Mr. Diokno has consistently said he is eyeing to bring down banks’ RRR to a single digit by the end of his term in mid-2023.