New rules on reserve requirements to release P28 billion

MANILA, Philippines — The exclusion of interbank borrowings, repurchase agreements as well as bonds issued to financial intermediaries from the reserve base of banks would free up P28 billion in additional funds to the financial system, according to an economist.

Rizal Commercial Banking Corp. chief economist Michael Ricafort said the decision of the Bangko Sentral ng Pilipinas (BSP) to exclude borrowing from banks, quasi-banks and other financial intermediaries under deposit substitutes that are subject to reserve requirements would free up P28 billion in additional funds.

Ricafort said banks could use the additional liquidity to increase lending activities or investments in the local financial markets, translating to faster gross domestic product (GDP) growth.

“(This) could add to loan growth, increased economic activities, and faster economic or GDP growth, as well as support further gains in the local financial markets, such as in the local fixed income or bond market,” he said.

The BSP has approved the revision to the definition of deposit substitute to align it with the provisions of Republic Act 11211 of the New Central Bank Act.

Under Section 95 of the new BSP Charter, a deposit substitute refers to a form of obtaining funds from the public, other than deposits, through the issuance, endorsement or acceptance of debt instruments for the purpose of relending or purchase of other receivables and obligations.

The provisions also clarified that the term “obtaining funds from the public” refers to borrowing from 20 or more lenders that are individuals or corporate entities that are not financial intermediaries.

This amendment, the central bank explained, is in line with the regulator’s commitment to implement legislation and ensure that its regulatory framework is consistent with prevailing laws.

“It also facilitates the flow of funds within the financial system which may help reduce intermediation costs and, in turn, support the economic activity,” the BSP said.

The BSP has reduced the “ultrahigh” RRR for big banks by 600 basis points to 14 percent from 20 percent two years ago. Between P90 billion and P100 billion in additional funds are released into the financial system to finance more loans and boost economic activity for every percentage point reduction in the RRR.