THE Monetary Board, the policymaking body of the Bangko Sentral ng Pilipinas (BSP), approved a package of measures to further reduce the financial burden on loans to micro-, small- and medium-scale enterprises (MSMEs).
In a statement, the Monetary Board said loans granted to MSMEs “shall be counted as part of banks’ compliance with reserve requirements.”
The Monetary Board observed that the coronavirus disease (COVID-19) health crisis has severely disrupted economic activity across the country.
“The outbreak continues to worsen overseas, thus, sharply reducing prospects for global economic growth for the rest of the year. The Monetary Board also assessed that it would take time before the situation stabilizes,” it said.
The Monetary Board believes that a further reduction in the policy interest rate as well as increased support for lending to MSMEs would “ensure adequate liquidity in the financial system and help reduce borrowing costs.”
Detailed guidelines on this and other related measures will be released this week.
The Monetary Board said these measures should mitigate the adverse impact of the outbreak on the economy by reinforcing the health and fiscal measures already being rolled out by the national government.
“The monetary initiatives will also quicken economic recovery as the pandemic fades,” it said.
In an off-cycle move, the Monetary Board on Thursday decided to reduce the key rates of the BSP by another 50 basis points (bps) to help insulate the economy from the effects of the COVID-19.
Central banks lower interest rates to encourage borrowing and investing, thereby possibly stimulating economic growth. But this may hasten inflation.
Rates are raised, meanwhile, when there is too much growth. Higher borrowing rates slow inflation and return growth to more sustainable levels.
The Monetary Board has also reduced the reserve requirement ratios of universal and commercial banks as well as non-bank financial institutions with quasi-banking functions by 200 bps; suspended the term deposit facility auctions for certain tenors; reduced the term spread on the peso rediscounting loans relative to the overnight lending rate to zero; and relaxed various regulations pertaining to compliance reporting, calculation of penalties on required reserves, and single borrower limits.
These are all meant to help the economy combat the negative effects of COVID-19.
Nicholas Antonio Mapa, ING Bank senior economist, said BSP’s move to allow banks to allocate lending to SMEs to satisfy their reserve requirement “could effectively releases P360 billion for fresh lending and then some as any further loans to this sector could eat into the P1.2 trillion set aside in the BSP’s virtual vaults.”
“Details on the new directive are forthcoming but (BSP Governor Benjamin) Diokno is getting quite creative in churning out new ways to help provide stimulus. Although a different model used by other countries such as the US and Indonesia that have specific funds setup primarily for SMEs, but it follows the current trend of BSP flexing while investors look to the fiscal side of the fence to match,” Mapa said.
He added the move “looks like a de factor RR reduction” as it frees up more money for banks to lend out to the greater public who will be needing cash to fight off the fallout from the COVID-19.
“But as what we’ve seen from past RR reductions, credit conditions and the general state of the economy matter in the timing of such moves and throwing money at the problem is not as effective unless channeled effectively,” Mapa said.
