Loans to MSMEs, large firms as RRR compliance near P200 billion

MANILA, Philippines — To comply with the reserve requirement, banks have extended nearly P200 billion in loans to small, medium and large firms as of end-March, according to the Bangko Sentral ng Pilipinas (BSP).

Latest data from the BSP showed that loans extended to micro, small and medium enterprises (MSMEs) used as alternative compliance with the reserve requirement ratio (RRR) amounted to P163.5 billion as of March 25  as the BSP continues to extend regulatory relief measures to the industry amid the pandemic.

The amount accounted for 11.5 percent of the total required reserves. The figure also showed a substantial increase from the P8.7 billion in MSME loans reported for the week ending April 2020.

Likewise, loans to large enterprises used as RRR compliance reached P33.7 billion or 2.4 percent of total.

The figures are still within the caps imposed by the BSP on the amount of loans extended by banks used as alternative compliance to RRR. The cap was set at P300 billion for MSMEs and P425 billion for large companies.

Once the set limits are reached prior to end-December 2022, the BSP will amend existing policy by closing the eligibility window on the use of the relief measure.

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 loan to borrowers.

“Recognizing the important role that they play in the economy and in the country’s recovery from the health crisis, the BSP’s regulatory relief measures aim to stimulate increased lending to MSMEs and to channel funding to heavily-affected businesses,” the central bank said.

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

The Monetary Board slashed the RRR for universal and commercial banks by 200 basis points in March last year and for thrift, as well as rural and cooperative banks, by 100 basis points effective in July 31, 2020 as part of measures to soften the impact of the COVID-19 pandemic on the economy.

As part of COVID-19 response measures, the BSP allowed banks to count their 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 measure, which allows 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 2022, giving the industry more time to study the risks of extending such loans.