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Keisha Ta-Asan - The Philippine Star
February 22, 2025 | 12:00am
The BSP said it would reduce the reserve requirement ratios (RRR) of local banks, effective March 28, to free up more funds to boost the economy.
STAR / File
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) surprised markets yesterday as it announced another major reduction in the amount of deposit banks are required to keep with the central bank.
The BSP said it would reduce the reserve requirement ratios (RRR) of local banks, effective March 28, to free up more funds to boost the economy.
“The BSP reiterates its long-run goal of enabling banks to channel their funds more effectively toward productive loans and investments. Reducing RRRs will lessen frictions that hinder financial intermediation,” the central bank said.
The RRR is the percentage of bank deposits and deposit substitute liabilities that banks cannot lend out and must set aside in deposits with the BSP.
The regulator slashed the RRR for universal and commercial banks, as well as non-bank financial institutions with quasi-banking functions (NBQBs) by 200 basis points, to five percent from the current level of seven percent.
The RRR for digital banks was likewise slashed by 150 basis points to 2.5 percent from four percent.
Furthermore, the level of deposits mid-sized or thrift banks are required to keep with the BSP was lowered by 100 basis points to zero percent from one percent.
The RRR of rural and cooperative banks also remained at zero percent. This means that thrift banks and small lenders are no longer required to keep a level of their deposits with the BSP.
“The new ratios shall take effect on the reserve week beginning on March 28 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs,” the BSP said.
Earlier in January, BSP Governor Eli Remolona Jr. said the central bank is targeting to cut big banks’ RRR by 200 basis points in the first half to help stimulate economic activity.
Last Feb. 13, the BSP chief said further reduction in the RRR could come “sooner than the middle of this year.” The regulator last lowered the RRR for banks in October 2024.
Michael Ricafort, chief economist of the Rizal Commercial Banking Corp., estimated that the reserve requirement cut will inject P330
billion of additional liquidity into the banking system. This excess liquidity gives banks greater flexibility to expand lending, invest in bonds and fixed-income securities or allocate funds to equities, foreign exchange and other assets.
“Instead of being idle as required reserves, about P330 billion can be deployed to more productive investment outlets that generate earnings,” Ricafort said.
He added that increased loanable funds, particularly from large banks, would spur credit activity at lower intermediation costs, effectively reducing borrowing expenses. This will encourage more investments, boost employment, enhance trade and stimulate business and economic activities, all of which contribute to faster gross domestic product growth.
