BSP wants banks to lend more to firms but loan incentives still underutilized

MANILA, Philippines — The central bank is encouraging financial institutions to lend more to both small and large companies to help restore growth to the country’s economy, and it is doing so by setting a generous ceiling on the amount of loans that can be used to comply with bank reserve rules.

In a statement, the Bangko Sentral ng Pilipinas said its Monetary Board has set limits in the amount of loans to micro-, small- and medium enterprises and large enterprises that may be utilized by banks as alternative compliance with reserve requirements.

Aggregate loans to small and large firms utilized under this relief measure should not exceed P300 billion and P425 billion, respectively.

“[Banks] are encouraged to continue to avail of the relief measure to sustain lending and financial support to viable MSMEs and large enterprises,” BSP Governor Benjamin Diokno said. “Access to finance by these businesses will contribute to the recovery of the domestic economy and will help secure our envisioned path of sustainable and inclusive growth.”

He explained that the limits are calibrated based on different simulations and are meant to ensure that the use of loans as an alternative mode of compliance is in line with domestic liquidity conditions and projected growth.

Based on preliminary data, the average amount of MSME loans and loans to large enterprises utilized by banks as compliance with the reserve requirements in the latest tally were P123.6 billion and P29.5 billion, respectively — still far below the ceiling approved by the Monetary Board, giving banks more room to lend to companies, and book these loans as eligible reserves.

Existing guidelines allow banks to utilize loans small and large companies as alternative compliance with reserve requirements until the end of 2022, “subject to early closure, if warranted and with prior notice.”

If the set limits are reached prior to the end of this scheme, the central bank said it will amend the existing policy by closing the eligibility window on the use of the relief measure.