May 24, 2019
THE bangko Sentral ng Pilipinas (BSP) bank has reduced the reserve requirement ratio (RRR) of small banks on Thursday, with monetary authorities ordering a total of 300-basis-points (bps) reduction on the liquidity-mopping tool.
“This morning, the Monetary Board decided to cut the RRR for thrift, savings, [rural] and cooperative banks,” BSP Governor Benjamin Diokno announced in a message to reporters.
Thrift and savings banks’ reserve requirement will be reduced by a total of 200 bps to 6 percent from the current 8 percent.
An initial 100-bps reduction will take effect on May 31. This will be followed by 50-bps cuts on June 28 and by July 26.
Meanwhile, the RRR of rural and cooperative banks will be slashed by 100 bps to 4 percent from the current 5 percent.
The reduction comes a week after the Monetary Board decided to cut universal and commercials banks’ 18-percent reserve requirement to 16 percent.
The 200 bps reduction, according to analysts, will infuse about P190-billion additional liquidity into the financial system.
The RRR is the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers.
P20B additional liquidity
In a comment, Rizal Commercial Banking Corp. economist Michael Ricafort said the latest RRR cuts would be equivalent to about P20 billion in additional peso liquidity to be infused into the system.
He explained that a 1-percentage-point (ppt) cut to the RRR of thrift and savings banks is equivalent to P9.3-billion additional peso liquidity.
On the other hand, every 1 ppt cut to rural and cooperative banks’ reserve requirement is equivalent to P1.8 billion, Ricafort added.
He also said the RRR cuts would allow smaller banks to increase lending activities to consumers, businesses and the agriculture sector, especially in the countryside or areas outside Metro Manila, where most of the smaller banks and their customers are located.
“Thus, the resulting increase in lending activities by the smaller banks would help contribute to greater economic activities, especially in the provinces [or] regions, and also contribute to faster overall economic growth,” the economist added.
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