BSP tweaks reserve requirement rules

THE BANGKO SENTRAL ng Pilipinas (BSP) has lowered the minimum amount of certain deposit and deposit substitutes that banks and nonbanks are required to hold as reserves, which could further boost liquidity in the financial system that can be used for lending activities.

In a circular dated Feb. 11 signed by BSP Governor Eli M. Remolona, Jr., which amends reserve requirement regulations in both the Manual of Regulations for Banks (MORB) and Manual of Regulations for Non-Bank Financial Institutions (MORNBFI), the BSP cut the percentage of required reserves against specific types of peso deposit and deposit substitute liabilities of banks effective on the reserve week starting Feb. 27.

It lowered the required ratio for long-term negotiable certificates of time deposits (LTNCTDs) to 0% for universal, commercial, thrift, rural, and cooperative banks from 4% previously.

It also brought the rate of required reserves against mortgages/chattel mortgage certificates issued by thrift banks down to 0% from 6%.

For other bonds, the mandated percentages were lowered to 2% for universal, commercial, and digital banks and to 0% for thrift banks from 3% previously.

The rate of required reserves against trust and fiduciary accounts-others was also set at 0% for all banks and nonbanks. Based on the latest updated MORB and MORNBFI, this rate was at 17% for big banks and nonbanks, 9% for thrift banks and 4% for rural banks.

Reserve requirements are the percentage of peso deposit and deposit substitutes that banks and nonbanks may not lend out and need to set aside with the BSP or in eligible government securities.

The BSP adjusts these minimum ratios as part of its liquidity management operations.

Reservable liabilities include demand, savings, and time deposits, as well as deposit substitutes like LTNCTDs.

The reserve requirement ratio (RRR) for big banks and nonbanks is currently at 5%, while the ratio for digital banks stands at 2.5%. Meanwhile, thrift, rural, and cooperative banks’ reserve ratio is at 0%.

The BSP has said that reducing RRRs helps lessen frictions that hinder financial intermediation, enabling banks to channel their funds more effectively toward productive loans and investments.

The latest circular also updated rules on the computation of banks’ reserve positions, sanctions for deficiencies, and compliance reporting.

Under the amendments, the central bank said required reserves for the current reserve week are still computed using the previous week’s levels of deposit, deposit substitutes and all other reservable liabilities, but available reserves now include banks’ actual deposits in BSP Demand Deposit Accounts plus alternative compliance options within the current reserve period.

The reserve position shall be calculated by deducting required reserves from available reserves, the BSP added.

Meanwhile, for penalties on reserve deficiencies, the BSP said it will observe a “single reserve period” for certain instances. This means that a non-reserve day falling on a Friday or any two days in a reserve period other than Saturday and Sunday will be combined with the next reserve period.

The central bank also imposed a flat rate of 0.1% of the reserve deficiency as penalty for banks or quasi-banks that would fail to meet the required minimum reserve position.

The BSP likewise shortened the redemption period for erring lenders to just one reserve period or a week from at least two consecutive weeks of compliance. — Katherine K. Chan