BSP slashes banks’ reserve requirements

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) surprised markets yesterday as it announced another major reduction in the amount of deposit banks are required to keep in their vault.

In a statement, the BSP said the Monetary Board has approved the reduction in the reserve requirement ratio (RRR) of Philippine banks, effective Oct. 25.

The regulator slashed the RRR for universal and commercial banks as well as non-bank financial institutions with quasi-banking functions (NBQBs) by 250 basis points, to seven percent from the current level of 9.5 percent.

The RRR for digital banks was likewise slashed by 200 basis points to four percent from six percent.

Furthermore, the level of deposits mid-sized or thrift banks are required to keep with the BSP was lowered by 100 basis points to one percent from two percent.

Meanwhile, the RRR of rural and cooperative banks was cut by 100 basis points to zero percent from one percent. This means that small lenders are no longer required to keep a level of their deposits with the BSP.

“The new ratios shall take effect on the reserve week beginning on Oct. 25 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs,” the BSP said.

According to the BSP, the adjustments in banks’ reserve requirements are in line with its continuing efforts to reduce distortions in the financial system.

“The reductions will lower intermediation costs and promote better pricing for financial services,” the central bank said.

“As inflation continues to track a target-consistent path over the next two years, the BSP will reassess the need for further reductions in the RRRs to better align them with regional norms over the medium term,” it added.

Earlier in May, BSP Governor Eli Remolona Jr. said the central bank is targeting to cut the RRR of universal and commercial banks by 450 basis points to five percent.

The RRR is the percentage of bank deposits and deposit substitute liabilities that banks cannot lend out and must set aside in deposits with the BSP.

The BSP has already brought down the RRR for big banks to a single-digit level last year from a high of 20 percent in 2018.

In June 2023, the BSP lowered the RRR for big banks and NBQBs by 250 basis points to 9.5 percent from 12 percent previously.