MSME loans from small banks hit P13 B

Thrift and rural banks released P13.306 billion loans to micro, small and medium enterprises (MSMEs) and eligible large companies as alternative compliance to the reserve requirements (RR).

The latest data from the Bangko Sentral ng Pilipinas (BSP) showed that in the last reserve week of July, MSMEs borrowed P13.3 billion while eligible large companies took out P6.5 million loans from the small banks.

The P13.3 billion accounted for one percent of total required reserves for the particular reserve week. The P6.5 million loans from large enterprises accounted for 0.0005 percent of total required reserves.

Since June 30, the BSP has removed the same privilege for the big banks or the universal and commercial banks, but the thrift and rural banks can still avail of the BSP’s relief measure on the use of new or re-financed loans to MSMEs and eligible large enterprises as alternative compliance with the RR against deposit liabilities and deposit substitutes.

The thrift and rural banks will be allowed to utilize their outstanding loans to MSMEs and eligible large enterprises as alternative mode of RR compliance until such loans are fully paid, but not later than Dec. 31, 2025.

The use of new or re-financed loans to MSMEs and eligible large enterprises as alternative RR compliance are relief measures implemented by the BSP during the pandemic.

The BSP removed the temporary relief measure for big banks to coincide with the reduction in the RR ratios last June 30. The BSP reduced the RR ratios for big banks, thrift, rural, digital and non-banks.

Meanwhile, discontinuing RR-compliant loans for the big banks “facilitate the transition” of banks’ compliance with the RR and to help in “managing friction costs related to the policy adjustment,” said the BSP.

The latest data on big banks’ RR-compliant loans before its cancellation was P283 billion as of end-May. This includes the smaller banks’ loans under the relief measure.

With the continued recovery in the economy, the BSP has started to wind down the relief measures implemented during the Covid-19 crisis except for those that encourage lending to MSMEs.

The BSP reduced the RR ratio on June 30, the same day that the relief measure expired.

The BSP cut both banks and non-banks’ RR ratios to single-digit levels by as much as 250 basis points (bps) for selected banks. The new ratios apply to the local currency deposits and deposit substitute liabilities of banks and non-banks.

The BSP has previously announced to the market that it will reduce the RR ratios before the expiration of the RR-compliant loans. This relief measure was first implemented in March and April 2020 and extended three times.

Changes in RRs have a significant effect on money supply in the banking system.

The last time the BSP reduced the RR ratios for big banks was March 2020, when Covid-19 was first declared a global pandemic. By August of the same year, the BSP also reduced the RR ratios of thrift and rural banks by 100 bps.

These funds cannot be used for lending since RRs refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP.