Loans used as compliance to reserve ratio hit P120 billion

MANILA, Philippines — The amount of bank loans extended to micro, small and medium enterprises (MSMEs) as well as large enterprises reached P120 billion as the Bangko Sentral ng Pilipinas (BSP) continues to extend regulatory relief measures amid the global coronavirus pandemic.

BSP Governor Benjamin Diokno said banks extended P106 billion in loans to MSMEs as an alternative mode of compliance with the reserve requirement ratio (RRR) as of Aug. 20.

The amount was more than 11 times the P9.3 billion average daily balance of MSME loans used by banks immediately after the effectivity of the measure during the reserve week ending April 30.

Diokno said loans to large enterprises amounted to P13.6 billion or 17 times since the measure took effect.

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 and for thrift as well as rural and cooperative banks by 100 basis points effective July 31 as part of measures to soften the impact of the coronavirus disease 2019 pandemic on the economy.

As part of COVID-19 response measures, the BSP allowed banks to count loans to MSMEs and large enterprises as part of their compliance to the level of deposits they are required to keep with the central bank.

The temporary measure allowing banks to use additional loans to MSMEs and large enterprises severely affected by the pandemic as alternative compliance to the RRR has been extended to the end of 2022 instead of end-2021.

The extension gives banks and quasi-banks more time to study the risks of extending loans to MSMEs and large enterprises severely affected by the COVID-19 pandemic.

MSMEs play a very important role, contributing 35.7 percent of the total value added to the Philippine economy. They account for 99.5 percent of the total establishments and employ 62.8 percent of the total labor force.

The economy stalled after Malacañang placed the entire Luzon under enhanced community quarantine in the middle of March to prevent further spread of the deadly virus. The lockdown was relaxed when the National Capital Region (NCR) shifted to general community quarantine allowing some businesses to resume.

However, the lockdown was tightened anew as Metro Manila and nearby provinces were reverted to the modified enhanced community quarantine from Aug. 4 to 18 as cases soared.

As a result, the Philippines slipped into recession with a record gross domestic product contraction of 16.5 percent in the second quarter and 0.7 percent in the first quarter.

The COVID-19 response measures of the BSP have unleashed P1.9 trillion into the financial system including the latest P540-billion provisional advance to the national government to fight the pandemic, the RRR reduction, the 175-basis points cuts in the benchmark policy rate, the P20 billion dividends remitted to the treasury, the P300 billion repurchase agreement with the Bureau of the Treasury and the purchase of government securities in the secondary market.