Loans used as compliance to reserve ratio hit P121 billion

MANILA, Philippines — Bank loans extended to micro, small and medium enterprises (MSMEs) that are booked in compliance with the reserve requirements reached P120.9 billion as of Oct. 1 as the Bangko Sentral ng Pilipinas (BSP) continues to extend regulatory relief measures amid the pandemic.

BSP Governor Benjamin Diokno said the amount used as compliance with the central bank’s reserve requirement ratio (RRR) as of Oct. 1 was almost 14 times the P8.7 billion reported in April.

Likewise, the amount of loans to large enterprises used as alternative RRR compliance also surged during the review period.

“The BSP’s measures to incentivize lending to MSMEs and critically impacted large enterprises have resulted in the grant of new loans or in the renewal or restructuring of loans to MSME borrowers,” Diokno said.

The BSP requires banks to keep a minimum amount of cash reserves with the BSP determined by the amount of deposit liabilities owed to customers.

It slashed the RRR for universal and commercial banks by 200 basis points in March 30 and for thrift banks, as well as rural and cooperative banks, by 100 basis points effective July 31 as part of measures to soften the impact of the 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 up to December 2022.

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 pandemic.

MSMEs play a very important role in the economy, contributing 35.7 percent of the total value added to the country’s total economic output and account for 99.5 percent of the total establishments and employ 62.8 percent of the total labor force.

“Given the vital role played by the MSME sector in reinforcing the country’s growth prospects, the BSP is working on the establishment of market-enabling infrastructure that will sustain recovery of the MSME sector,” Diokno said.

The BSP chief said measures include the establishment of a credit risk database with the help of the Japanese government to enable MSMEs to readily access low-cost and collateral-free lending.

Diokno said the central bank is also supporting the passage of the proposed Government Financial Institutions Unified Initiatives to Distressed Enterprises for Economic Recovery or GUIDE Act to provide financing to MSMEs and other strategically important companies.