Medium-sized banks seek lower stock of liquid assets

MANILA, Philippines — Mid-sized banks are seeking lower stock of liquid assets, including cash on hand required to be kept with the Bangko Sentral ng Pilipinas (BSP), to free up more funds for lending amid the COVID-19 pandemic, according to the Chamber of Thrift Banks (CTB).

CTB second vice president Francisco Dizon said the reduced minimum liquidity ratio (MLR) of 16 percent for stand-alone thrift banks is still high and prevents the industry from lending more.

“Unfortunately, the minimum liquidity requirement of thrift banks continues to remain at a much higher level of 16 percent. Hence, the potential loanable funds of thrift banks continue to be held mostly in low-yielding government securities in order to comply with the required MLR,” Dizon said.

Mid-sized and small banks are required by the BSP to maintain a stock of liquid assets proportionate to their on-and off-balance sheet liabilities to promote short-term resilience of liquidity shocks.

The liquidity ratio is expressed as a percentage of a bank’s eligible stock of liquid assets, including cash on hand, reserves in the BSP, overnight and term deposits with BSP, deposits in other banks, eligible debt securities, among others to its total qualifying liabilities.

As part of the regulatory relief measures extended to soften the impact of the health crisis, the Monetary Board temporarily lowered the MLR for stand-alone thrift, rural and cooperative banks to 16 percent from 20 percent last April until the end of the year.

Dizon, who is also president of Sun Savings Bank, said thrift banks face significant interest rate risks in investing in low-yielding government securities.

The CTB asked the BSP to further lower or extend the relief measure so that the industry could be in a better position to participate in the anticipated economy recovery in the coming years.

For his part, BSP Governor Benjamin Diokno said the central bank would look into the request of the CTB on further lowering of the MLR for mid-sized banks.

“There is a request and we will assess this level based on prevailing market conditions, as well as capacity of banks to effectively manage their liquidity risk exposures. I can assure you that we will revisit the current policy towards more relaxation,” Diokno told members of the CTB during the 2020 virtual convention.

The CTB believes the MLR reduction would greatly support micro, small, and medium enterprises, as well as consumers severely affected by the pandemic.

Furthermore, Diokno said the BSP has also deferred the revised capital adequacy framework for thrift banks to Jan. 1, 2023 instead of Jan. 1, 2022.

“To enable stand-alone thrift banks to continue to support their rural community-based clients, the BSP deferred the implementation of the revised risk-based capital framework applicable to stand-alone thrift banks,” Diokno said.

Likewise, the reserve requirement ratio for mid-sized banks and small banks were slashed by 100 basis points to three and two percent, respectively, last July 31.