Unleashing liquidity: Reserve requirement loans soar

Banks’ loans offered as an alternative means of complying with the reserve requirement (RR) have seen an increase of 8.8 percent, reaching P302.4 billion as of the end of April.

Out of the total loans, P236.9 billion were extended to micro, small, and medium enterprises (MSMEs).

According to data from the Bangko Sentral ng Pilipinas, P65.5 billion was borrowed by large enterprises not affiliated with conglomerates. These figures surpass the 2022 values of P212.8 billion in RR-compliant loans for MSMEs and P65 billion for eligible large enterprises.

As of the end of April, MSME loans accounted for 14.1 percent of the required reserves for the covered reserve week, while loans to large enterprises represented 3.9 percent.

In comparison, the figures for the previous year stood at 13.6 percent for MSME loans and 4.2 percent for large enterprises.

The aggregate limits for MSME loans currently stand at P300 billion, while large enterprises have access to up to P425 billion.

The BSP has extended the deadline for RR-compliant MSME and eligible large enterprise loans until June 30, 2023. This relief measure, initially implemented in April 2020, was renewed for the third time and expired on December 30, 2022.

Reserve requirements denote the percentage of bank deposits and deposit substitute liabilities that banks are obligated to hold in deposits with the BSP, preventing them from lending out the funds.

With the ongoing economic recovery, the BSP has begun to phase out relief measures implemented during the Covid-19 crisis, with the exception of those aimed at fostering lending to MSMEs.

MSMEs constitute approximately 99.5 percent of the total business establishments operating in the country.