BSP set to unwind relief measure on banks’ compliance with the reserve requirements

The Bangko Sentral ng Pilipinas (BSP) will begin to unwind the temporary regulatory relief measure allowing banks to utilize peso-denominated loans to micro-, small- and medium- enterprises (MSMEs) and large enterprises (LEs) that are critically impacted by the COVID-19 pandemic as alternative compliance with the reserve requirements (RR) on 01 July 2023.

The unwinding of the relief measure is set to coincide with the reduction in the reserve requirement ratios by 30 June 2023 to facilitate the transition, supporting the banks’ continued compliance with the RR and managing friction costs related to the policy adjustment.

Starting 01 July 2023, universal and commercial banks shall no longer be allowed to use MSME and LE loans as alternative compliance with the RR.

Meanwhile, thrift, rural and cooperative banks shall be allowed to utilize their outstanding MSME and LE loans as of 30 June 2023 as alternative mode of compliance with the RR until such loans are fully paid, but not later than 31 December 2025.

The outstanding MSME and LE loans of thrift, rural and cooperative banks that subsequently become past due or non-performing, or are extended, renewed, or restructured, shall no longer be eligible as alternative compliance with the RR.

Likewise, new MSME and LE loans that are granted by banks after the expiry of the relief measure shall not be eligible as alternative compliance with the RR.

The unwinding of the temporary relief measure will restore the use of the RR as an instrument for managing liquidity in the financial system in line with the BSP’s broader agenda of enhancing its liquidity management capabilities.

It will also simplify the administration of banks’ compliance with the reserve requirement.