Vol. XXI, No. 187 [ Business World Online ]
Thursday, April 24, 2008 | MANILA, PHILIPPINES
THE BANGKO SENTRAL ng Pilipinas (BSP) is considering lower bank reserve requirements in a bid to lessen intermediation costs and encourage lending.
Current domestic reserve requirements, said BSP Deputy Governor Diwa Guinigundo, are higher compared to neighboring countries.
Banks are required to use 79% of deposits for lending, with the remaining 21% going to central bank vaults for safekeeping. The latter reserve requirement is way higher than the average of 4-5% in other Southeast Asian countries.
Of the 21%, 11% is designated as liquidity reserves while the remaining 10% is categorized as statutory reserves.
The lowering of reserve requirements is expected to encourage banks to lend more as the BSP pays only around 4% on statutory reserves. Liquidity reserves, which are normally kept in the form of short-term government securities, also yield lower than bank deposits.
"Instead of lending your funds where you may get higher yields, you’ll only get about 4% [from the BSP]. That’s why [the requirement incurs a] cost for banks," Mr. Guinigundo told reporters.
While this may cause inflation to rise as more money is released into the system, he said it may in fact help manage consumer prices as people tend to borrow more to produce more.
Mr. Guinigundo declined to provide more details, but said the central bank was already conducting simulations.
"When it’s time to do that, we’ll be able to come up with the numbers," he said.
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