The Bangko Sentral ng Pilipinas ruled out any more reduction in the deposit reserve requirement of thrift banks, saying that at 2 percent, the mandatory reserves are already low.
This was stressed by BSP assistant governor Arifa A. Ala who said thrift banks should not find it difficult to observe the deposit reserve rule given the level at which the 37-member Chamber of Thrift Banks (CTB) are mandated to observe.
“At this point, there is no need to further reduce the deposit reserve requirement. At 2 percent, the deposit reserves are quite low,” the senior BSP official said.
A mandatory deposit reserve level is imposed on banks of all types in the Philippines, which is a portion of their deposits they are forbidden to deploy as loans for when the deposits need them. In the manual of regulations, the banks are required to set aside this portion as cash in their vaults or as deposits at the BSP.
Ala said the deposit reserve requirement imposed at the moment “is quite comfortable for thrift banks.”
Deposit reserves are an important tool allowing the BSP to control the level of liquidity in the financial system and keep it from overheating manifested as inflation. The BSP walks a fine balance also because anything less than optimum denies the broader economy the fuel it needs to move the economy forward measured as local output growth or the gross domestic product (GDP).
The BSP in June this year in fact allowed the deposit reserve level to ease by 250 basis points for commercial and universal banks to 9.5 percent, by 200 basis points for digital banks to 6 percent, and by 100 basis points for thrift, rural and cooperative banks to 2 percent.
While the deposit reserve rule is a potent monetary tool for the regulator, the banks view it as a form of tax which from time to time they try to influence lower.
