Metro Manila (CNN Philippines, October 24) — The Bangko Sentral ng Pilipinas (BSP) has announced a fresh cut in the reserve standard for banks, which comes ahead of a reduction scheduled in November.
The BSP’s Monetary Board announced another 100 basis point (bp) reduction in the reserve requirement ratio (RRR) for big banks on Thursday, which would take effect in the first week of December.
This means that the reserve standard will drop during the last two months of 2019. The BSP previously announced a 100 bp cut in the required deposit reserves of banks which are due this November.
The reserve standard for universal and commercial banks will drop to 14 percent of total deposits by yearend. This effectively leaves the banks with more money to lend, and at a cheaper rate.
The BSP also trimmed the mandatory reserves for non-banks with quasi-banking functions, which will stand at 14 percent by yearend. Meanwhile, thrift banks — which focus on retail borrowers mostly for homes, cars, and salary advances — will only have to keep 4 percent of cash deposits in their vaults.
The reserve standard for rural banks will stay at 3 percent, with the last adjustment taking effect next month.
Earlier in October, BSP Governor Benjamin Diokno hinted that monetary officials are not yet done with RRR cuts after three successive waves between May and July. The lower reserves also follow three reductions in the key interest rate, which has been dialed back to 4 percent after a series of hikes introduced in 2018.
READ: BSP done with rate cuts for 2019
The central bank said lowering the RRR will make the local financial system “more efficient” by reducing banking costs, while also pumping more cash to support economic activity.
Banks have been calling for a lower RRR, saying that it was 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.
A one percentage point reduction in the reserve standard is said to unleash about ₱100 billion in cash to the economy. The goal is to bring the reserve level to single digit by 2023, or by the end of Diokno’s term.
