The Bangko Sentral ng Pilipinas (BSP) on Friday announced a reduction in the banks’ deposit reserves from 9.5 percent at the moment to 7 percent beginning October this year.
The 250 basis point cut takes effect on the 25th of October and reduces the reserve requirement ratios (RRRs) by 250 basis points (bps) for universal and commercial banks (U/KBs) and non-bank financial institutions with quasi-banking functions (NBQBs); 200 bps for digital banks; and 100 bps for thrift banks (TBs) and for rural banks and cooperative banks (RCBs).
“The reduction shall bring the RRRs of U/KBs and NBQBs to 7.0 percent; digital banks to 4.0 percent; TBs to 1.0 percent; and RCBs to 0.0 percent. The new ratios shall take effect on the reserve week beginning on 25 October 2024 and shall apply to the local currency deposits and deposit substitute liabilities of banks and NBQBs,” the BSP said.
According to the BSP, the adjustments are in line with continuing efforts to reduce distortions in the financial system.
“The reductions will lower intermediation costs and promote better pricing for financial services. As inflation continues to track a target-consistent path over the next two years, the BSP will reassess the need for further reductions in the RRRs to better align them with regional norms over the medium term,” the BSP said.
The decision allows the various banks to deploy as loans going forward a greater portion of their deposits held in reserve by regulation and unavailable for lending at the moment.
Economists have estimated the deposit reserve cut to have released P380 billion or previously unavailable liquidity for deployment as loans down the line, helping boost local output expansion measured as the gross domestic product (GDP) seen as high as 7 percent this year.
