Liquidity in PH financial system hits P2T in 2020

Liquidity infused into the financial system to support the country’s economic recovery from the Covid-19 pandemic hit about P2 trillion last year, the Bangko Sentral ng Pilipinas (BSP) reported on Wednesday.

During the Kapihan sa Manila Bay forum, BSP Governor Benjamin Diokno said the amount injected was “equivalent to about 10 percent of the country’s 2019 nominal GDP (gross domestic product).”

He did not provide a breakdown of the figure, but said the central bank had deployed several monetary instruments and extraordinary liquidity-enhancing measures to support the economy.

One was reducing the policy rate by a cumulative 200 basis points (bps) last year, which Diokno said “aimed at uplifting market confidence amid stronger headwinds owing to the pandemic.”

The BSP’s overnight borrowing, lending and deposit rates currently stand at 2.00 percent, 1.50 percent and 2.50 percent, respectively, as of December 17.

The Bangko Sentral also trimmed the reserve requirement ratio (RRR) of banks by 200 bps “to calm the markets and support bank lending to both retail and corporate sectors,” he added.

RRR, or the proportion of current deposits that banks need to keep with the central bank against the sum they can loan out to borrowers, is currently at 12 percent.

According to Diokno, the central bank’s liquidity injection also included the P300 billion and P540 billion in provisional advances to the government, which were settled in September and December, respectively.

The BSP, he said, also implemented regulatory relief measures aimed at extending financial relief to borrowers of Bangko Sentral-supervised financial institutions; incentivizing bank lending; promoting continued access to credit and financial services; and supporting the continued delivery of financial services.

Monetary authorities also allowed new loans to micro, small and medium enterprises (MSMEs) to be counted as banks’ compliance with reserve requirements.

“This is to encourage banks to continue lending to smaller businesses and critical large enterprises. This will also ensure sufficient domestic liquidity and credit in support of economic activity amid lockdown measures,” Diokno said.

MSME loans used as alternative compliance with reserve requirements reached P134.8 billion as of Nov. 26, 2020, representing 9.8 percent of the total reserve requirement.

Loans to large businesses used as compliance totaled P29.1 billion, or 2.1 percent of the total reserve requirement.

The BSP also approved a limit on loans to small and large businesses used as alternative compliance at P300 billion and P425 billion, respectively.

“Given the abruptness and scale of the pandemic, the BSP deemed it necessary to provide additional emergency support to the government’s broad-based health and fiscal programs related to Covid-19,” Diokno said.

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