Metro Manila (CNN Philippines, May 23) — Shortly after announcing phased cuts to the required reserves for big banks, the Bangko Sentral ng Pilipinas (BSP) rolled out a similar move for thrift and rural lenders.
BSP Governor Benjamin Diokno told reporters on Thursday that the Monetary Board has approved the lowering of the reserve requirement ratio (RRR) for thrift, rural, and cooperative banks. This comes a week after the Monetary Board approved a three-stage reduction in the RRR for the big boys, or the universal and commercial banks.
“The BSP will issue the necessary circular shortly,” Diokno said in a text message.
READ: BSP announces three bank reserve cuts in one go
Banks have been calling for a lower RRR, saying that this is effectively a tax on banks as they are forced to keep a substantial portion of deposits intact rather than use them to grant more loans.
The Monetary Board decided to bring down the required reserves for rural and cooperative banks to four percent by May 31. These lenders, who usually cater to small borrowers in the provinces, currently need to keep five percent of total deposits on hand.
Bolder cuts will be rolled out for thrift banks: from the current eight percent RRR, it will be slashed by 100 basis points (bps) by May 31, and by 50 bps in June 28. Another 50 bp reduction will take effect July 26, leaving the required reserves at six percent.
Thrift banks cater to retail clients, mostly for home and car loans. These lenders also charge higher interest rates compared to corporate credit lines.
The phased reduction for thrift banks’ RRR mirrors the 200bp cut introduced for big banks, which will settle at 16 percent by end-July.
The BSP said slowing inflation and tempered price expectations made the case for these long-awaited reserve cuts.
“The Monetary Board also expects this adjustment to help mitigate any tightness in domestic liquidity conditions due to limited public expenditure following the budget impasse in the first quarter of the year,” the central bank added.
Banks have welcomed recent reserve cuts, saying this will unlock more funds that will fuel business activity.
On May 9, the BSP also reduced the benchmark interest rate by 25bp to 4.5 percent, kicking off an easing cycle for monetary policy.
