By Luisa Maria Jacinta C. Jocson, A reporter
THE BANGKO SENTRAL in Pilipinas (BSP) is planning to lower the reserve requirement ratio (RRR) “significantlyly” this year, said its CEO.
“We are considering it. We discussed it in time. I would say it will happen this year,” said BSP Governor Eli M. Remolona, Jr. in an interview with the media on Wednesday.
“We will significantly reduce storage requirements this year and next year it will decrease,” he added.
RRR is the proportion of reserves that banks must hold onto rather than lend money to.
The BSP lowered the rate for central banks and non-banking financial institutions for banking-like activities by 250 bps to 9.5% by June 2023.
It also reduced the rate for digital banks by 200 bps to 6% and 100 bps for savings banks, and rural and cooperative banks to 2% and 1%, respectively.
The central bank has since lowered the RRR for global and commercial banks to single-digit levels from a high of 20% in 2018.
“Banks want a reduction in the reserve requirement and say ‘if you lower it, we’ll do something else for you,’ reduce the cost of making payments, for example,” said Mr. Remolona.
“We are trying to manage that. But the idea is to reduce the maintenance requirements in a big way,” he added.
Earlier the BSP governor said that they are looking to reduce the RRR to less than 5%.
Meanwhile, Mr. Remolona said the reduction of RRR in the economy will not be immediate.
“Our transmission equipment is playing for a long time. That’s because the markets are shallow and illiquid. We are considering these issues,” he said.
“At the same time, we are trying to improve the availability of funds in the markets to shorten those lags. But that is efthat will take time. “
BSP Assistant Governor Zeno R. Abenoja said lowering the RRR would encourage lending activities and economic growth.
“We hope that more money will be distributed to help increase productive economic activities. However, that will take time,” he said.
Therefore, some of them will be distributed through various banks ffinancial markets, including government securities, equity, but some of them still remain in their accounts, including returning it to the BSP. “
The RRR cut in June last year coincided with the expiry of the BSP’s pandemic relief measures, which allowed banks to count loans to small businesses as part of their compliance with the reserve requirement for deposit loans and other provisions.
“Regarding liquidity, the reserve requirement is on our balance sheet on the same side, on the debt side. Therefore, if we cut the reserve requirement, that part will decrease and we want to compensate for that,” said Mr. Remolona.
“So, that’s a lot of money for the banking system and we want to compensate for that by taking some of that money, which will go into another part of our balance sheet,” he added.
The BSP official earlier said that the current RRR of the Philippines is among the highest in Asia. He also said that reserve requirements “drive the boundary” between deposit rates and lending rates.
If a bank is required to hold a lower reserve ratio, it has more money to lend to borrowers. This increases the bank’s lending capacity, contributing to its ability to support economic growth and meet the credit needs of individuals and businesses.
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