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BSP excludes loans to MSMEs and large enterprises from reserve requirements

Effective July 1, 2023, the Bangko Sentral ng Pilipinas (BSP) will no longer consider loans extended to micro-, small-, and medium-sized enterprises (MSMEs) and large enterprises when calculating banks’ reserve requirements.

This marks a significant shift in the BSP’s approach, as it previously allowed banks to utilize these loans as an alternative means of meeting reserve requirements.

The temporary relief measure, implemented during the COVID-19 pandemic, aimed to support the economy and businesses, benefiting both banks and MSMEs.

According to a recent statement by the BSP, this unwinding of the relief measure is in line with the scheduled reduction of reserve requirement ratios on June 30.

The objective is to ensure a smooth transition for banks, enabling them to maintain compliance with reserve requirements and minimize any associated friction costs.

This change applies specifically to universal and commercial banks, while thrift, rural, and cooperative banks will still be allowed to use their outstanding loans to MSMEs and large enterprises for alternative compliance until full repayment.

However, loans extending beyond December 31, 2025, will no longer qualify for this alternative method. Additionally, any new loans granted to MSMEs and large enterprises after the relief measure expires will not be eligible for alternative compliance.

As of the end of 2021, BSP data showed that total loans to MSMEs amounted to P136.33 billion.

This unwinding of the relief measure aims to restore the reserve requirement’s role as a crucial tool for managing liquidity in the financial system, aligning with the BSP’s broader goal of enhancing its liquidity management capabilities. Furthermore, it seeks to streamline the process of banks’ compliance with reserve requirements, simplifying overall administration.

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