Bank lending to MSMEs hits P336 billion in 2022

MANILA, Philippines — Bank loans to micro, small and medium enterprises (MSMEs), as well as large companies that are booked in compliance with their reserve requirements, reached P336 billion in 2022 as the Bangko Sentral ng Pilipinas (BSP) started withdrawing regulatory relief measures put in place during the COVID-19 pandemic.

Data from the BSP showed the Philippine banking system allocated an average of P263.1 billion loans to MSMEs for compliance with the reserve requirement ratio (RRR).

The amount was equivalent to 15.9 percent of the required reserves for the reserve week ending Dec. 29, 2022.

This was a substantial increase from the P8.7 billion in MSME loans reported for the week ending April 30, 2020.

Likewise, loans of banks to large enterprises used as compliance to the RRR amounted to P72.9 billion or 4.4 percent of the total required reserves for the same period.

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

“Amid the winding down of the BSPs’ temporary relief measures introduced during the COVID-19, some initiatives were extended, particularly those that incentivize lending to MSMEs. These include the reduced credit risk weight of loans granted to MSMEs and the utilization of peso-denominated loans to MSMEs and large enterprises as alternative compliance with the reserve requirements against deposit liabilities and deposit substitutes,” the BSP said.

According to the central bank, the extension of the relief measures until end-June this year would encourage banks to continue to support the financing requirements of creditworthy MSMEs.

The temporary measure, which allows banks to use additional loans to MSMEs and large enterprises severely affected by the COVID-19 pandemic as alternative compliance to the RRR, has been extended further to June 30.

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.

During 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.

Last Thursday, BSP Governor Felipe Medalla said the regulator could reduce the level of deposits banks are required to keep with the central bank once the regulatory relief measure expires next month.

To siphon off excess liquidity from the lapse of the regulatory measure, as well as the lowering of the RRR, Medalla said the central bank may increase the volume of its open market operations, including the term deposit facility (TDF) and the BSP securities.

To increase the volume, the BSP is looking at offering at a new tenor or the 56-day for its weekly BSP securities auction.

By siphoning off excess liquidity in the system, the central bank helps control inflation that averaged 7.9 percent in the first four months, higher than the BSP’s two to four percent target range.