New framework said to pose no risk to banks

The Bangko Sentral ng Pilipinas believes that the country’s banking sector will be able to manage its exposure to bad debts even with the implementation of a new reserve requirement framework.

The BSP said Moody’s Investors Service need not be concerned with the new reserve requirement framework. The new set of guidelines would not push banks to lend even to credit-risky borrowers, raising their chances of acquiring more non-performing loans.

BSP Governor Amando Tetangco Jr. said banks have so far kept the same credit standards over the past quarter or two, adding that there are no signs they will relax of these standards due to the new framework.

Prior to the announcement of the new reserve requirement, BSP officials pointed out to banking representatives that the new system would have a neutral impact on banks’ liquidity and should not prompt them to relax credit standards, Tetangco said.

Reserve requirement is the proportion of deposits held by banks that must be kept as reserves. Reserves are meant to help control growth of money within the economy and thus temper inflation.

Under the new framework, the BSP will no longer pay interest on the reserves, which used to generate income for banks.

Moody’s warned that the termination of interest on reserves would lead to lower margins for banks, and this could prompt them to increase lending even to credit-risky borrowers just to recover lost income.

But such a concern is unlikely to happen, the BSP said, citing the prudent lending standards Philippine banks have observed over the years. Michelle V. Remo