Bangko Sentral ng Pilipinas (BSP) said on Tuesday that thrift, rural and cooperative banks would be expected to hold a smaller portion of deposits intact to further improve lending.
BSP Governor Benjamin Diokno said in a statement that a 100-base point reduction in the reserve requirement ratio (RRR). It aims for the smaller banks would take effect on July 31.
It matched to similar relaxation steps for universal and business lenders.
The larger borrowers hold 12 percent deposit reserves.
Thrift banks will only have to hold an amount equal to 3 percent of their total deposits beginning Friday next week.
Meanwhile, rural and cooperative lenders will only need to retain 2 percent of their deposits. The freed-up cash may hand out to clients as additional loans.
Banks Kept 20 Percent of Total Deposits
Banks have been needed to keep 20 percent of total deposits on hand for the longest time. It considered being among the highest in the world.
This is analogous to a tax on banks by financial institutions. They do not make efficient use of the funds.
Diokno said, adding the lower RRR will also minimize borrowing costs. And also, ease financial pressure on borrowers.
“The reduction is expected to increase these banks’ lending ability. It aims to support the financing needs of their micro, small and medium-sized enterprises as well as rural community-based clients,”
The BSP added that the reserve cuts also aim to boost liquidity. It was initially restricted due to the COVID-19 pandemic during the early part of the lockdowns.
The central bank has also been gradually cutting the reserve standard, hoping to make borrowing money from banks and away from informal lenders and loan sharks easier and cheaper for the people.
Interest rates are at a record low after a series of rate cuts. It has the intention to ease the economic effects of the global health crisis. Then, it made borrowing money more affordable.
Michael Ricafort, an economist at Rizal Commercial Banking Corp., said the fresh RRR cut would unleash approximately $11 billion. It goes to the financial sector. It was of which would come from thrift banks at $8.1bn.
Follow and join us on Youtube, Instagram, Facebook, and Twitter to be part of the trader community in Asia
