Bank loans extended as RRR compliance reach P260 billion

MANILA, Philippines — Loans extended by banks to micro, small and medium enterprises (MSMEs) as well as to large companies, used as alternative compliance with the reserve requirement, reached over P260 billion as the Bangko Sentral ng Pilipinas (BSP) continues to extend regulatory relief measures as the country gradually recovers from the impact of the pandemic.

Preliminary data from the BSP showed the Philippine banking system allocated an average of P198.9 billion loans to MSMEs for compliance with the reserve requirement ratio (RRR).

The amount was equivalent to 12.8 percent of the required reserves for the reserve week ending March 17.

Likewise, loans of banks to large enterprises used as compliance with the RRR amounted to P67.4 billion,  4.3 percent of the total required reserves for the same period.

“To ensure continuous support to banking operations and key economic sectors including MSMEs, most of the BSP’s relief measures remained in place,” the central bank said in its latest report on trends in the Philippine financial system.

The figures disbursed as of early December were still within the caps imposed by the regulator: P300 billion for MSMEs and P425 billion for large companies.

Once the set limits are reached, the BSP can amend existing policy by closing the eligibility window on the use of the relief measure.

The temporary measure, which allows banks to use additional loans to MSMEs and large enterprises severely affected by the pandemic as alternative compliance with the RRR, has been extended until this year from the original target date 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 crisis.

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.

At the height of the COVID-19 outbreak in 2020, the BSP reduced the RRR for universal and commercial banks by 200 basis points, and for thrift as well as rural and cooperative banks by 100 basis points to cushion the impact of the global health crisis on the economy.

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

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 borrowers.