No need to reduce thrift banks’ MLR, BSP says

THE BANGKO SENTRAL ng Pilipinas (BSP) will not cut the minimum liquidity ratio (MLR) of thrift banks despite calls for its reduction from the sector.

“The BSP recognizes the thrift banking industry’s valuable contribution to the country’s economic growth through its lending activities. Nonetheless, the BSP views that maintaining the minimum liquidity ratio of 20% is appropriate. This ensures that covered banks have adequate liquid assets to withstand potential stress events while continuing to meet their clients’ funding needs,” the BSP said in a statement.

“A reduction of the MLR to 16%, which was implemented during the pandemic as a regulatory relief measure, is not warranted at this time.”

The BSP in April 2020 brought down the MLR for stand-alone thrift banks, rural banks and cooperative banks to 16% from 20% to help these lenders meet their clients’ demand for funds at the height of the coronavirus pandemic. This regulatory relief measure expired at end-2022.

The Chamber of Thrift Banks earlier said lowering the sector’s MLR will help boost lending to consumers and micro, small, and medium enterprises.

The central bank said the thrift bank industry’s MLR has “consistently” remained above the 20% requirement.

“As of May 2024, the industry has over P35 billion in additional loanable funds. On an individual bank level, the majority of banks report ratios significantly exceeding 20%. This demonstrates that the thrift banking industry remains capable of complying with the prudential liquidity requirement while continuing to expand lending,” it said.

The regulator added that the MLR is not an additional reserve requirement.

“The MLR is a micro-prudential requirement intended to promote banks’ short-term resilience to liquidity shocks. In contrast, reserve requirements are employed as a monetary policy tool that aids to manage the volume of domestic liquidity.  Moreover, bank reserves are considered liquid assets under the MLR framework. Thus, the requirements are not additive in nature,” the central bank said.

“The BSP continues to monitor banks’ compliance with liquidity requirements and will react promptly to any developments that may impede compliance on an industry-wide basis.”

Thrift banks’ reserve requirement ratio (RRR) is currently at 2%. The RRR is the percentage of bank deposits and deposit substitute liabilities that banks cannot lend out and must set aside in deposits with the BSP. — A.M.C. Sy