Global debt watcher Moody’s Investors Service said Wednesday the Bangko Sentral ng Pilipinas’ move to reduce the reserve requirement ratio will be credit positive for local banks.
Moody’s said in its quarterly newsletter “Inside ASEAN” the lower reserve requirement would be credit positive because the banks would be able to deploy funds more efficiently.
“In addition, the release of liquidity, estimated at more than P200 billion, will ease tight domestic liquidity conditions. Capital pressure will intensify as we expect loan growth to recover in tandem,” it said.
Moody’s said banks would remain well-capitalized because of high regulatory capital requirements and their proven access to capital markets.
The BSP cut the RRR by 200 basis points or 2 percent in May 2019 to 16 percent, still the highest in the region.
BSP Governor Benjamin Diokno said Tuesday during the economic forum organized by the Economic Journalists Association of the Philippines in Manila that further RRR cuts remained “a live issue.”
The RRR and policy rate reductions came at a time when real GDP growth decelerated to 5.6 percent in the first half and headline inflation settled within the target range.
“The RRR adjustment is also part of the central bank’s reform agenda to raise efficiency in the financial system. Net interest margins will get a boost as a result of the reduction. We estimate the net interest margin to expand by five to ten basis points for every 200 basis point cut in the RRR,” Moody’s said.
Diokno earlier said he was aiming for a single-digit level of RRR for the universal and commercial banks by the end of his term in 2023. Moody’s said this implied a “further increase in banks’ profitability if the progressive reduction is implemented as planned.”
Reserve requirement, also called cash reserve ratio, is a central bank regulation to requires banks to sets aside a minimum fraction of customer deposits and notes as reserves.
Nicholas Mapa, the senior economist of ING Bank Manila, said earlier that with inflation gliding back to within the target range of 2 percent to 4 percent and expected to remain benign well into 2020, this was the perfect opportunity for the BSP to cut both the policy rate and RRR.
The BSP’s Monetary Board cut the overnight borrowing rate by 25 basis points to 4.25 percent on Aug. 8.