ANZ Research: RRR cuts to 'bolster bank profitability'

ANZ Research [link], the research arm of the Australian bank, said that the BSP’s recent reduction in the Reserve Requirement Ratio (RRR) by 250 basis points is a “positive development”, but one that is “unlikely to materially accelerate [credit growth]”. ANZ Research said that the excess liquidity created by RRR cuts is not automatically converted by banks into credit to borrowers, and that even if it were, the types of borrowing in demand by consumers “reflect weak household economic conditions as opposed to favourable income prospects.” While ANZ Research said that there’s no “durably positive relationship” between bank lending and RRR cuts, it did say that this cut (and those to come) will “bolster bank profitability and reduce intermediation costs.” ANZ Research concluded that it “[does] not anticipate a boost to credit arising from the RRR cuts until non-financial constraints on the Philippines’ business cycle ease.”

MB bottom-line:  This is just one view, but it’s saying something that I think is important when it comes to the banking industry’s framing of the “jumbo” RRR cut. In short, it’s saying that just having lower rates and access to credit are not–by themselves–enough to get people buying assets (mostly residential housing) with loans. They point to the disturbing trend of credit demand being largely for credit cards, salary loans, and “others”, which consumers are using to pay for household needs (food, medical expenses, travel), and they’ve taken this trend to indicate that the Philippine consumer is not operating from a position of economic strength. This is what I’ve been talking about when I drone on and on about how the CPI is still super high even though inflation is falling. All of the non-wealthy people in my life have been struggling to make ends meet due to the rising cost of basically everything, and this ANZ Research report corroborates some of what I’ve been seeing. Like I said, though, this is just one view, and it (and I) might be completely wrong about the situation.   

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