Manila: The Bangko Sentral ng Pilipinas (BSP) will reduce the reserve requirement ratios (RRRs) of banks as part of its efforts to reduce distortions in the financial system.
In a statement on Friday, the BSP said the RRR of universal and commercial banks (U/KBs) and non-bank financial institutions with quasi-banking functions (NBQBs) will be reduced by 250 basis points to 7 percent from the current 9.5 percent.
The BSP said the RRR of digital banks will also be slashed by 200 basis points to 4 percent from 6 percent.
Thrift bank (TBs), rural banks, and cooperative banks’ (RCBs) RRR will also be reduced by 100 basis.
The reduction shall bring the RRRs of TBs to 1.0 percent and RCBs to 0.0 percent.
The BSP said the new ratios shall take effect on the reserve week beginning on Oct. 25, 2024 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs.
“The BSP emphasizes that these adjustments in reserve requirements are in line with its continuing efforts to reduce
distortions in the financial system,” the BSP said.
“The reductions will lower intermediation costs and promote better pricing for financial services. As inflation continues to track a target-consistent path over the next two years, the BSP will reassess the need for further reductions in the RRRs to better align them with regional norms over the medium term,” it added.
Reserve requirements refer to the percentage of bank deposits and deposit substitute liabilities that banks must set aside in deposits with the BSP which they cannot lend out.
Earlier this week, BSP Governor Eli Remolona Jr. signaled a substantial cut in banks’ RRR.
“We will reduce reserve requirements substantially this year and then there may be further reductions by next year,” he said.
Rizal Commercial Banking Corporation chief economist Michael Ricafort said the reduction in banks’ RRR will increase demand for loans and will boost economic growth.
In a Viber message, Ricafort said around PHP150 billion per 1 percentage point RRR red
uction, or a total of about PHP375 billion for the 2.5 percentage points cut in RRR, will be released into the financial system, in terms of more funds available for lending.
“This would lead to lower intermediation costs by banks and would be passed on in terms of lower loan rates, ” he said.
“Furthermore, there would be more pesos that could be invested in the financial markets such as bonds and other fixed income investments, stocks, currency, property, among others,” he added.
Source: Philippines News Agency