Bank loans used as RRR compliance down in May

MANILA, Philippines —  Thrift and rural banks continued to extend loans to micro, small and medium enterprises (MSMEs) and large companies as alternative compliance with the reserve requirement ratio (RRR), releasing P6.5 billion loans in May, the Bangko Sentral ng Pilipinas (BSP) said.

“For the reserve week ending May 23, thrift banks and rural and cooperative banks allocated an aggregate of P6.5 billion loans to MSMEs for compliance with the reserve requirements,” the BSP said.

The loans accounted for 0.5 percent of the total required reserves for the said reserve week.

Thrift banks as well as rural and cooperative banks were still allowed to use their outstanding loans to MSMEs and large enterprises as RRR compliance until Dec. 31, 2025. This was after the BSP’s temporary relief measure expired for big banks in June last year.

The outstanding MSME and large enterprise loans of mid-sized and small banks as of June 2023 that become past due or non-performing were no longer eligible as alternative compliance with the reserve requirements.

Likewise, new loans to MSMEs and large enterprises granted by banks after June 30 last year are not eligible as alternative compliance with the reserve requirements, the BSP said.

First implemented in April 2020, the BSP allowed banks to count their loans to MSMEs and large companies as alternative compliance with the reserve requirements against deposit liabilities and deposit substitutes, hoping that this could boost lending to the sector at the height of the COVID-19 pandemic.

The central bank capped loans to MSME and large enterprises not affiliated with conglomerates that banks could use as alternate reserve compliance at P300 billion and P425 billion, respectively.

The BSP requires banks to keep a minimum amount of cash reserves with the central bank determined by the amount of deposit liabilities owed to customers.

In end-2022, the Philippine banking system allocated P263.1 billion loans to MSMEs for compliance with the RRR. This was equivalent to 15.9 percent of the required reserves.

Likewise, loans of banks to large enterprises used as compliance with the RRR amounted to P72.9 billion or 4.4 percent of the total required reserves for the same period.