BSP unleashes P2.3 trillion for COVID-19 response

MANILA, Philippines — The central bank has so far unleashed P2.3 trillion into the financial system to help economic recovery gain more traction and, at the same time, boost domestic market demand amid the pandemic.

In a presentation before the Senate committee on finance during the Development Budget Coordination Committee (DBCC) budget hearing, BSP Governor Benjamin Diokno said the central bank continued to implement temporary and time-bound monetary policy measures to ensure ample liquidity in the financial system, restore financial market functioning and shore up market confidence.

“As of September 2021, the BSP’s measures have injected into the financial system about P2.3 trillion in liquidity, equivalent to 12.7 percent of the country’s full year nominal GDP for 2020,” Diokno said.

The BSP’s COVID response measures include the aggressive 200-basis-point interest rate cuts, lowering of the bank reserve requirement ratio, P540-billion provisional advance to the national government, P20-billion advance dividend remittance to the national coffers, and purchase of government securities in the secondary market, among others.

“These measures include a mix of decisive monetary policy adjustments and extraordinary liquidity measures along with regulatory relief and forbearance measures,” the BSP chief added.

Latest data showed money supply (M3) or liquidity in the financial system expanded by 5.9 percent year-on-year in July as bank lending gradually recovers.

“Domestic liquidity in the financial system remains ample,” Diokno said.

He said lending activity showed some indications of improvement as the decline in loan disbursement by universal and commercial banks slowed for the eighth straight month, albeit at a slower pace of 0.7 percent in July from two percent in June.

“However, credit activity has remained weak due to risk aversion and weak economic sentiment. Bank credit continues to decline as the necessary measures to address the still elevated number of COVID-19 cases constrained domestic economic activity and dampened market sentiment,” Diokno said.

He said the regulator expects the non-performing loans (NPLs) of the banking system to remain within manageable levels despite increasing to 4.5 percent with coverage ratio of 82.4 percent in end-June this year.

The BSP said Republic Act 11523 or the Financial Institutions Strategic Transfer (FIST) Act would help reduce the industry’s NPL ratio by 0.6 to 5.8 percentage points from 2021 to 2025.

“The FIST Act will reinforce banks’ capital and liquidity position in the long term by allowing financial institutions to dispose their non-performing assets, increase their risk-bearing capacity, and enhance their capability to provide financial services to productive sectors of the economy,” he said.

According to the BSP, banks would remain well-capitalized as the industry’s capital adequacy ratio stood at 16.9 percent in end-March, well above the central bank’s minimum threshold of 10 percent.

“The BSP stands committed and ready with its enhanced onsite and offsite surveillance tools and prudential policy toolkit to promote the financial sector reform agenda for sustaining the sound and stable financial system conducive to a strong, dynamic and inclusive economic growth recovery of the country,” Diokno said.

The BSP chief said the central bank’s Monetary Board remains keen on sustaining accommodative policy settings for as long as necessary until the country recovers fully from the impact of the COVID-19 pandemic.