The phased withdrawal of Bangko Sentral ng Pilipinas pandemic incentives to banks is considered liquidity neutral and will have a positive effect on the three biggest lenders Banco de Oro, Bank of the Philippine Islands and Metrobank.

Malaysian investment bank Maybank said in a report that BDO remains a top buy as its scale hybrid digital and brick-and-mortar strategy put it at the forefront of lending and current account, savings account, or CA/SA growth.

“We also like BPI as its digitalization initiatives and collaboration with GCash complement its growth and generate higher fees and lower costs. We also like MBT given strong earnings growth and cheap valuations,” according to the report.

During the pandemic, the BSP reduced the risk weight assigned to micro, small, and medium enterprise or MSME loans to 50 percent from 75 percent and allowed a certain portion of such credit, which totaled P254 billion systemwide, to be used as part of reserves.

The measures that BSP took reduced the banks’ risk-weighted assets, and correspondingly freed up capital in the form of higher common equity tier-1 ratio, and by extension, liquidity due to the additional reserves.

Data from the BSP showed that banks’ MSME exposures, as a percentage of total loans, dropped to 4.5 percent in 2022, from 6.4 percent in 2019, implying that the banks did not fully utilize their incentives.

As such, the expiration of incentives by 30 June 2023 should have no material effect, particularly for key banks which are compliant with the 12 percent reserve requirement ratio or RRR due from BSP at 12 percent of total deposits even without the alternative reserve-ratio-compliant MSMEs.

Every 100 basis points RRR cut could raise earnings by 0.9 to 1.3 percent. At 12 percent, the Philippines still has the highest RRR among its peers in the region, according to Maybank.