BSP excludes inter-bank borrowing as deposit reserves

This amendment is in line with the BSP’S commitment to implement legislation and ensure that the BSP’s regulatory framework is consistent with prevailing laws.

The Bangko Sentral ng Pilipinas (BSP) is extending the banking community a new source of liquidity as large as P100 billion in the form of excluding borrowings from banks, quasi-banks and other financial intermediaries from the mandatory deposit reserves.

“The Monetary Board approved the revision to the definition of a deposit substitute to align the same with the provisions of the BSP Charter which was amended under Republic Act No. 11211,” the BSP said.

“Under Section 95 of the new BSP Charter, a deposit substitute refers to a form of obtaining funds from the public, other than deposits, through the issuance, endorsement or acceptance of debt instruments for the purpose of relending or purchase of other receivables and obligations,” it added.

According to the BSP, such borrowings include interbank borrowings, repurchase agreements with financial counterparts as well as bonds issued to financial intermediaries.

With the exclusion, the central bank anticipates more liquidity to be freed out in the financial system that would allow additional lending or investment activities among lenders.

“This amendment is in line with the BSP’S commitment to implement legislation and ensure that the BSP’s regulatory framework is consistent with prevailing laws,” the BSP said.

“It also facilitates the flow of funds within the financial system which may help reduce intermediation costs and, in turn, support the economic activity,” it concluded.

Early on, the BSP aimed to reduce reserve requirement ratio (RRR) to a single digit, which releases liquidity in the financial system and help spur economic growth.

On a cumulative basis, the central bank has unwinded the banks’ deposit reserves by 400 basis points. Economists estimate some P90 to P100 billion worth of additional liquidity is released to the financial system for every 100-basis point reduction in reserves.