BSP opened to lower minimum liquidity ratio of savings banks – Manila Bulletin

The savings banking sector can still get its minimum liquidity ratio (MLR) lower than requested or lower than the current 16%, as the Bangko Sentral ng Pilipinas (BSP) has kept its review open.

BSP Governor Benjamin E. Diokno said on Thursday (5 May) that the MLR of autonomous savings banks continued to be above the 20% benchmark, at 37.3% at the end of January this year. This was more than double the current 16% MLR requirement.

BSP Governor Benjamin E. Diokno

The central bank reduced the MLR from 20% to 16% in 2020 as part of the relief measures due to the pandemic. However, the savings banks want this ratio to be further reduced to 14%.

“The liquidity ratio of the autonomous savings banks remained well above the minimum threshold of 20%,” Diokno told an online press briefing.

“A review will be undertaken if necessary taking into account the liquidity needs and the economic situation of the country,” he also said.

The 16% MLR, as a pandemic relief response, will remain in place until the end of 2022.

Savings banks have been asking for a 14% lower MLR since 2020. If the BSP decides not to extend the relief measure by the end of 2022, the MLR will revert to 20%.

Liquidity buffers or liquid assets are used in times of crisis by autonomous savings banks, rural banks and cooperative banks. Autonomous savings banks can draw on their stock of liquid assets to meet demands for liquidity to meet current conditions.

During his presentation to the media on Thursday, Diokno said savings banks continued to be stable and resilient with “robust” capitalization and liquidity, as well as improving asset quality. The industry is also able to support financing for households, micro, small and medium enterprises (MSMEs) and the agricultural sector.

At the end of February, savings banks released some 209.8 billion pesos in loans for household consumption, or 40.8 percent of the sector’s total loans of 514 billion pesos. Meanwhile, its non-performing loans (NPLs) have been improving since September 2021. In February, its NPLs to their total loans stood at 8.9%.

Loans to MSMEs and the agricultural sector amounted to P61.3 billion and P22 billion, respectively, in the first two months of 2022. Regarding the use of MSME loans as an alternative to compliance of reserve requirements, savings banks have allocated an average of 20.8 billion pesos in loans to MSMEs. This represented 1.3% of total reserve requirements for the reserve week ending April 21.

“BSP recognizes the role of the savings banking sector in promoting inclusive growth and meeting the needs of the MSME and agriculture sectors.

With this in mind, the BSP is pursuing a reform program for 2022 which aims to strengthen the financial institutions supervised by the BSP by further improving corporate governance, risk management and operational resilience,” Diokno said on Thursday.

Diokno added that BSP will leverage digital technologies to “further strengthen our oversight and monitoring tools; pursue vigorous cybersecurity measures to effectively manage related risks and protect the public interest; and perpetuate our initiatives in favor of sustainable finance.

At the end of February, savings bank assets reached 872.8 billion pesos, but they were lower than the 1.1 trillion pesos recorded in the same period of 2021. Its capital adequacy ratio (CAR) fell stood at 19.3% at the end of September 2021, which was well above the BSP’s minimum requirement of 10%. The CAR was also higher than the 17.5% of the same period in 2020.

On the profit side, savings banks continue to be profitable. At the end of 2021, the sector posted combined net profits of 21.8 billion pesos, up 30% year-on-year.

“We are confident that the reform initiatives (BSP) will support the viability of the savings banking sector as the country moves towards a new sustainable and digital economy,” Diokno said.

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Sallie R. Loera