Small banks lent P15 B to MSMEs

MANILA – Thrift and rural banks have extended a total of P15 billion in loans to micro, small and medium enterprises (MSMEs) and eligible large companies as their alternative compliance to the reserve requirements (RR).

Data from the Bangko Sentral ng Pilipinas (BSP) showed that as of June 30 this year, thrift banks and rural banks released P14.4 billion of RR-compliant loans to MSMEs and P6.5 million for large enterprises that are not part of a conglomerate group. These accounted for 1.1 percent and 0.0005 percent of total required reserves for the period.

The figure is relevant as big banks or the universal and commercial banks as of June 30 are no longer allowed to utilize their outstanding loans to MSMEs and large enterprises as alternative mode compliance with the RR.

But the smaller banks such as thrift banks and rural banks can still set aside RR-compliant loans 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 compliance with the RR against deposit liabilities and deposit substitutes 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 by June 30 this year. The BSP reduced the RR ratios for big banks, thrift, rural, digital and non-banks last June.

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.”

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 will 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 RRR 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 RRR of thrift and rural banks by 100 bps.

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

As of end-May this year, thrift banks have total resources of P1.008 trillion while rural and cooperative banks have P408 billion. Both numbers are higher compared to same period in 2022 of P954 billion for thrift banks and P359 billion for rural banks, based on BSP data. (MB)