Banks lending more for COVID-19

MANILA, Philippines  — Banks have stepped up their lending to micro, small and medium enterprises (MSMEs) as well as some large enterprises to help jumpstart the economy that stalled with the implementation of the enhanced community quarantine, the Bangko Sentral ng Pilipinas (BSP) said.

In a virtual press briefing, BSP Governor Benjamin Diokno said banks are using the additional loans to MSMEs and large enterprises severely affected by the coronavirus disease 2019 or COVID-19 pandemic as alternative compliance to the reserve requirement ratio (RRR).

Diokno said around 88 mostly rural banks have used P44.2 billion worth of loans to MSMEs as alternative mode of compliance to the level of deposits they are required to keep with the BSP.

The amount, he said, was a significant increase from the P9.9 billion worth of MSME loans used by 55 banks effectively after the regulatory relief measure took effect.

MSMEs account for 35.7 percent of the total value added to the Philippine economy and make up 99.5 percent of the total establishments and 62.8 percent of the total labor force.

On the other hand, Diokno said only 14 banks that extended loans worth P534 million to large enterprises used the amount as compliance to the RRR as the measure took effect just last May.

Last month, the BSP’s Monetary Board decided to give banks one more year to use loan disbursements to MSMEs and large companies as compliance to the RRR until the end of 2022 instead of end of 2021.

The extension gave banks and quasi-banks more time to study the risks of extending loans to MSMEs and large enterprises severely affected by the health crisis.

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. It slashed the RRR for universal and commercial banks by 200 basis points last March 30, freeing up P200 billion into the financial system to boost economic activity.

The RRR for big banks has been reduced by 800 basis points to 12 percent from a high of 20 percent in early 2018 as part of commitment to bring down the level to single digit by the middle of 2023, while that of thrift as well as rural and cooperative banks are currently set at six and four percent, respectively.

Diokno said the unwinding of COVID-19 relief measures would be data-driven, done gradually and prudently, and communicated properly to all stakeholders.

“Timing is critical to the exit strategy, and this will be determined by the data that we will gather on inflation as well as on the capital and liquidity of banks and the financial system, which are essential to the decision-making process,” he added.

The BSP working paper titled “Exit Strategies: How Do We Proceed?” by Eloisa Glindro, Hazel Parcon-Santos, Faith Christian Cacnio, Marites Oliva and Laura Ignacio said the exit entails a reversion to policies that are consistent with the long-run economic growth path.

The paper warned the process should neither cause premature withdrawal of support nor give rise to delays in necessary structural economic reforms. It described a four-phase macroeconomic policy response to the pandemic.

The BSP has deployed a wide range of measures to keep liquidity and credit flowing to households and businesses amid the pandemic.

These include a total of 175-basis points interest rate cuts, the lowering of the RRR for big banks by 200 basis points, the P300-billion repurchase agreement with the Bureau of the Treasury and the purchase of government securities in the secondary market have unleashed P1.6 trillion to the financial system.