Banks now lending more to PH firms, big and small, thanks to freed up reserves — BSP

Bank lending to local firms has begun to increase in recent weeks due to rising liquidity in the financial system, including new and cheaper loans taken out to pay off older, more expensive debt, according to the central bank.

In particular, Bangko Sentral ng Pilipinas Governor Benjamin Diokno said that the regulator’s moves to cut the reserve requirement of banks have resulted in an increase in the loans extended to micro, small and medium enterprises as well as large enterprises.

“This indicates that banks have continued to grant new loans or re-finance existing ones to MSMEs and large enterprises even through the quarantine,” he said in a statement to reporters on Tuesday. “We see this contributing positively to whole-of-nation efforts to mitigate the economic impact of the health crisis.”

Preliminary data revealed that for the reserve week ending July 23, 2020, 97 banks extended loans to MSMEs as an alternative mode of compliance with the reserve requirement with an average daily balance of P84.2 billion.

This is a substantial increase of 750.5 percent from the P9.9 billion average daily balance of MSME loans used by 55 banks immediately after the effectivity of the measure during the reserve week ending April 30, 2020.

Meanwhile, 13 banks provided loans to large enterprises as an alternative mode of compliance with the reserve requirement, with an average daily loan balance of P12.3 billion based on preliminary data for the reserve week ending July 23, 2020.

This represents a significant increase from the P376 million average daily loan balance to large enterprises which was used by 12 banks during the reserve week ending June 4, 2020, the start of the effectivity of the measure.

To buttress the economy against the effects of the coronavirus pandemic, the central bank cut banks’ reserve requirements — the amount of liquid assets they are required by law to keep immobilized in their vaults — by 200 basis points last March, resulting in some P200 billion in cash being injected into the financial system.

The policy-making Monetary Board also authorized Diokno to cut this level by another 200 basis points at his discretion, to better respond to fast-moving market developments.

All told, the central bank has injected some P1.3 trillion worth of liquidity into the Philippine economy since the start of the pandemic through a combination of interest rate reductions, reserve requirement cuts, regulatory relief for banks and loans to the national government.[ac]