BSP imposes uniform 4% reserve ratio on LTNCDs

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has imposed a uniform reserve requirement ratio (RRR) for long-term negotiable certificates of time deposits (LTNCDs), freeing up about P6 billion additional funds to the financial system and at the same time deepening the financial market.

BSP Governor Benjamin Diokno said the Monetary Board has approved the uniform RRR of four percent for LTNCDs issued by banks as well as other financial institutions.

“This is also part of the BSP’s ongoing initiative to enhance the effectiveness of monetary policy and deepen domestic money market,” Diokno said.

Prior to the unified rate, the BSP imposed a seven percent RRR for LTNCDs issued under Circular 824 and four percent for LTNCDs issued under Circular 304.

The regulator issued Circular 304 in October 2001 laying down the guidelines on the issuance of LTNCDs.

In June 2014, the BSP issued Circular 824 requiring banks to list LTNCDs issued by banks with an accredited exchange such as the Philippine Dealing and Exchange Corp. (PDEx) within 30 days upon approval by the BSP.

BSP Deputy Governor Diwa Guinigundo said the adoption of a uniform RRR of four percent on LTNCDs is meant to streamline the administration and ease monitoring requirements on the part of banks.

“The move will also increase funds available for lending support of the production sector alongside the growth of the economy,” Guinigundo said.

Guinigundo said the estimated increase in banks’ loanable funds is around P6 billion or 0.05 percent of latest data on domestic liquidity.

Guinigundo had said the central bank is now identifying the types of financial instruments to be covered by the RRR for banks in light of the recent amendments to the charter of the central bank.

Guinigundo said the BSP is reviewing existing regulations on RRR to align the new regulations on deposit substitutes with the provisions of the new BSP Charter under Republic Act 11211.

“We shall be covering all applications of RRR not only on different types of banks, but also with consideration of the type of financial instruments. This is also necessary in the light of the amendments of the BSP Charter,” Guinigundo said.

The BSP slashed the RRR for big, mid-sized, and small banks by 100 basis points effective May 31 due to the continued easing of inflation.

The level of deposits big and mid-sized banks are required to keep with the central bank would be slashed further by 50 basis points effective June 28 and by another 50 basis points effective July 26.

The move is expected to infuse P210 billion into the financial system to support the domestic economy after the country’s gross domestic product (GDP) growth eased to a four-year low of 5.6 percent in the first quarter of the year from 6.3 percent in the fourth quarter.